How to Pay Employees: Best Practices for Small Businesses

Running a small business is never an easy enterprise. There are so many hurdles to get over and challenges to overcome. After all, you’re doing on your own what a larger company might hire a huge team of people to accomplish.

However, small business owners are consistently found to be some of the most fulfilled people in the country. There are advantages to being your own boss and charting your own course. You just might need help figuring out the details, like how to pay employees and things of that nature.

Establishing payroll is one of those tasks that trips a lot of small business owners up. It doesn’t have to be too tough of a job, though. Read on and we’ll walk you through some essential payroll tips and practices. 

Payroll Service or DIY?

If you were to take a look through a variety of small businesses, you’d be likely to see a large variety in the way different owners handle the task of payroll. This is important: there’s no one way you MUST do your payroll (though there are a few ways you probably shouldn’t). 

If you think you have the time, you absolutely can handle all your payroll needs on your own. Many business owners do. If you have a small staff, just a few individuals, this can be something that you can put on your plate without taking up too much of your time each week.

However, if you have a bigger team or already have a million other tasks to focus on, adding payroll to your list of responsibilities might overwhelm you. It can take a solid chunk of time to get through the weekly needs of payroll each week– time you might not have as the sole owner/operator of your enterprise.

In these instances, it might make more sense to outsource this job. Yes, it will cost you a little cash, but the time it will save you over the course of a year will be immense.

An outsourced payroll company will take care of everything for you, from working out your federal taxes to distributing pay stubs. Yes, you can always create some fake pay stubs on your own, but wouldn’t it be nice to have another company do the real thing for you? 

Setting Up Payroll

If you are embarking on a quest to do all your payroll yourself, you’ll need to be familiar with the steps needed to properly get up and running. You should do this as early on during the establishment of your business as possible.

The first thing you will need is an Employer Identification Number, also known as an EIN. This is something that the Internal Revenue System handles and assigns to businesses all around the country. 

If you haven’t yet applied for an EIN, you can do so via the IRS website. 

The IRS will also likely have you complete a healthy stack of employer paperwork. This will cover the payroll taxes that will come from your business, including what will be withheld from your employees.

In some states, you will also need to apply for and obtain a State ID number for state tax reasons. Do some research and determine if that is necessary where you are located.

As you begin to hire workers for your business, ensure that they are filling out Form W-4 so that the federal government can properly withhold portions of their paycheck for tax purposes. You will need to report the number of employees you have to the IRS as well.

Consider Other Payroll Elements

The main role of payroll is to distribute wages on a pay period schedule to the employees of a small business. There are, however, other elements that you as a business owner will need to dive into before your business is fully up and running.

For example, what will your stance on paid leave be like? Being able to rely on their employer financially when an employee steps away is important to many potential hires. However, figuring out a paid leave policy can be difficult for many small businesses. 

There might certain laws already in place in the state in which you reside that outline how paid leave needs to be handled. It’s important to look into these laws.

There’s also the question of overtime. Depending on what industry you work in, there’s a chance you might have employees on the clock far past the time they were initially intended to get off. 

In this situation, they usually will be given overtime payment. Calculating this payment and having a system in place to handle the additional payout can be a lot of work for a small business owner as well.

Though not a direct part of a payroll system, there’s also insurance to think about. If an employee is injured on the job, they’ll need to apply for and be paid through your worker’s compensation insurance policy.

Working with your insurance company and ensuring payments go to your employee in a timely manner can be a headache of its own! While accidents might seem like a rare occurrence in your workplace, you never know what might go wrong.

Understanding How to Pay Employees

Running a small business can be the thrill of a lifetime. There’s nothing like building something from your own hand and putting it out into the world. However, if you’re planning on starting your own enterprise you’ll need to understand how to pay employees.

Running payroll can be complicated but getting familiar with the above information can greatly help.

Need more business advice and tips? Keep scrolling our blog for more information.