What does it mean to run payroll in a small business? If you’re new to owning and operating a small business, here are some basics to know about the proper assets required to run payroll. Plus, we share insight into how payroll differs from other business needs like human resources and accounting.
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What do we mean when we talk about payroll? Tricia Petteys, co-founder and chief operating officer of Payroll Vault, said payroll is the act of paying employees funds they are legally entitled to for the work they completed while also calculating additional earnings, deductions and taxes.
From these calculations, Petteys said payroll taxes are remitted to federal, state and local agencies and employee benefits. Some benefits accounted for include vacation or holiday paid time off (PTO), medical/dental insurance or 401(k) plans. Remember to consider how often you want to pay your employees — whether it’s weekly, bi-weekly or semi-monthly.
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What Do You Need to Run Payroll?
Armine Alajian, CPA and founder of the Alajian Group, shares with us the minimum assets necessary to run payroll for a small business:
Timesheets (if you have hourly employees)
A federal and state employer identification number (EIN)
A business bank account
Employee legal data
Employee bank account information for direct deposits
Resources to make sure you are operating payroll under legal compliance on the federal, state and local levels.
Alajian highly recommends using a payroll software.
“I would even say it’s mandatory to assure the payroll process is accurate and compliant with tax agencies,” Alajian said. “It would end up costing more to fix issues later on when doing this manually.”
What Happens When You Run Payroll?
A few days before the pay date, employers should gather total hours for the pay period, Petteys said. They also will need any new hire or termination information or employee changes such as bonuses or wage adjustments. Review whether there was a holiday during the pay period or whether anyone used vacation/PTO.
“Running payroll involves entering all of this information into your payroll system,” Petteys said, “then reviewing for accuracy before submitting.”
Alajian said there are other responsibilities with running payroll that fall outside of simply paying your employees. Some tasks include keeping employee information up to date, filing quarterly tax reports and getting together annual tax reports for employees, the IRS and state agencies.
How Does Payroll Differ From HR or Accounting?
If you don’t know what it means to run payroll, it’s easy to get the term confused with other aspects of running a small business, such as HR or accounting departments.
Petteys said HR is employee management for the lifecycle of the employee — from hire to termination. Accounting involves calculation of assets, liabilities and expenses for the entire business, not just the employee.
Either department could have payroll under their umbrella, depending on the situation and needs of the company. However, the act of payroll itself is solely focused on the process of paying employees.
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This article originally appeared on GOBankingRates.com: Experts: What Small Businesses Need To Know About Payroll