The current business landscape provides entrepreneurs with many opportunities to start a small business. For the salesman in all of us, we are able to run a company, without the confines of a corporate entity. Although it is an exciting prospect to undertake, you’ll have to be aware of all the tenets needed to kickstart your business.
If you are a new business owner, learning all of the details of payroll implementation can be challenging. However, it is a necessary component of every company. If you are unsure of anything, you can use payroll software to perform many of the financial processes. With the help of technology, you will do payroll easily and have more time to focus on your small business.
Not only will you have to ensure your employees are paid accordingly, you’ll have to know the requisites laws as well. In order to set up an efficient system, follow these tips on how to do payroll for small business:
1. Gather Business Information
Before your employees are ready to officially begin their tenure, it is important to collect certain documents and information from them first. These vary from country to country, but more or less remain the same in terms of what is needed. In Canada, for example, their social insurance number, or SIN number, will first be needed.
Afterwards, your employee will have to fill out a Form TD1, which is also known as their Personal Tax Credits Return. This form is specifically used to determine the amount of tax to be deducted from their income. Once the required data has been acquired, your workers are now viable for placement on payroll.
2. Calculate Worked Hours
In order to do payroll for small business, you must know of the hours your employee has worked. This can be as simple as writing down the hours, if you prefer. For this part, a time sheet is typically used to keep track of these hours, which seamlessly records all parts of a typical shift.
Some companies, on the other hand, have relevant hours worked logged into payroll software. This eliminates the need for a physical sheet, and allows a cloud computing system, for example, to record all the applicable hours. Depending on your business needs, there are multiple choices here to go with!
3. Calculate Gross Pay
Gross pay is calculated in a very simplified way. When conducting this process, the gross pay can be determined by multiplying the hours worked by the worker’s hourly pay rate. This may differ slightly if overtime pay is to be considered.
For an employee who has worked more than their standard hours, first determine how many hours of overtime were completed. Usually, the equation to use is to multiply the overtime hours at 1.5 times the regular pay rate. Always double check your country’s standard of overtime pay first, before calculating it for this step.
4. Calculate Payroll Deductions
This is an important part of how to do payroll for small business, as it will designate what alternative payments can be made to an employee down the line. In Canada, for example, deductions will include managing contributions from the Canada Pension Plan, or CPP. In addition, if the worker is insured, you will have to arrange deductions from Employment Insurance, or EI.
The deductions made from these two plans will have to be remitted to the Canada Revenue Agency, or CRA, via payroll remittances. If there are other deductions made, they can generally be found on the relevant pay stub. Explain these deductions to your employee, should they want to know more about them.
5. Providing Net Pay
Deductions from an employee’s gross pay is a pivotal part of the payroll process. However, once that process has been accomplished, net pay is the total amount of money paid to a worker. This takes into account all the required and voluntary deductions made previously.
In addition, after an agreed mode of compensation has been established, the employee will receive this amount on payday. It may be via paycheque, and delivered bi-weekly, to make things easier for both the employer and employee. Net pay typically appears on the bottom of the pay stub, usually after the payroll deductions and gross pay have been listed.
6. Storing & Compliance
Once your payroll system has been established, maintenance is key when moving forward. Modern-day companies usually use payroll software for maximum efficiency. Or, hiring an accountant to do most of the bookkeeping will take the burden off your shoulders.
Whatever method you choose to use for keeping your payroll system in good shape, complying with laws is just as important. If you are unsure of the federal regulations surrounding payroll, be sure to visit your home country’s website for more information. You will usually find all the information pertaining to federal and state-level laws in one, convenient location.