If you’re planning to open a business, you should know that there are so many details to smoothen out before your business can be fully operational. One of the things you need to figure out is your payroll. After all, you can’t run a business without employees, no matter how small your workforce is. To help you out, here are three payroll tips that all small business owners should know about:
Properly classify everyone in your payroll
Let’s say you have two people named Mark and Steven in your payroll who give you about the same kind of service. Now you have to figure out, “Is Mark an employee or an independent contractor?” “What about Steven?” “What’s the difference between the two?”
Well, for an employee, you deduct income tax, social security, and medical insurance, among others, from their wages. (Other benefits including life insurance and pension plans can also be deductible.) Meanwhile, you withhold nothing from an independent contractor because they act as a separate business entity from yours.
Aside from differentiating between an employee and an independent contractor, you should also categorize wages between salary and hourly rates. This will help you determine which employees are qualified to receive overtime rates.
Familiarize yourself with your local payroll tax laws
Even if you’re hiring payroll services, you need to be fully aware of your local payroll tax laws. What is the percentage? When is the due date? How much will it cost if you fall behind your payroll taxes? If you do hire a payroll service, make sure that they’re processing payroll taxes automatically so that you don’t miss the deadline.
An important reminder: always remember to account payroll taxes when setting your payroll budget. The last thing you need as a small business owner is to be surprised by unexpected labour costs because you forgot to take payroll taxes into account.
Get to know your payroll-related tax deductibles
Did you know that you could qualify for small business tax deductions if you’ve paid wages and payroll taxes for the year? Payroll-related tax deductibles include wages, employer contributions to social security, medical insurance, and other benefit programs such as life insurance, bonuses and commissions, paid vacation and sick days, and travel expense reimbursements. Keep these records and ask your payroll service provider whether they’re qualified for tax deductions.
Speaking of records, the rule of thumb in payroll and tax records is to keep them for at least four years. Organized record keeping will help you if ever there are problems in the accounting department. If you want to use less paper and keep your data in a more secured manner, you can always use a cloud-based storage system to store important documents. This also makes tracking and finding records a lot easier and manageable.
Starting your own business may seem like a daunting task, but you should learn to trust your instincts and do what you think is best for your company. If you’re stepping into unfamiliar terrain, don’t hesitate to ask for guidance. Hopefully, these payroll tips have helped you answer some of your business questions.