you finally got your amazing small business idea off the ground!
But, as you probably know quite well, it won’t feel real until the money’s all sorted out. So how are you going to pay your team?
Learning how to do payroll for a small business can be a bit complex, but we’ll break it down for you. Keep reading to get started on your payroll journey.
How to Do Payroll for a Small Business: The Basics
Before you get started with payroll in the first place, you’ll need to apply for an employer identification number (EIN). Then you should look up the laws in your state to see all the tax and labor requirements you’ll need to stick to.
If your employees are working in a different state, this can be a bit more complicated as taxes often differ from state to state. Some states that are near each other have tax agreements designed to avoid conflict.
Deductions and Taxes
Based on an employee’s salary or hourly rate, you can get a basic payment amount to work with. What you end up paying that employee will be somewhat smaller, since you’ll have to apply all the appropriate deductions and taxes.
So first, you’ll need to subtract the pre-tax deductions for your small business payroll. Examples of these kinds of deductions include insurance payments and retirement plan contributions.
Then it’s time to work through the taxes! Federal tax types include both FICA payroll taxes and federal income taxes. And don’t forget to calculate the state taxes as well.
Taxes are often the trickiest part, and they’re often what make payroll difficult for those who don’t have much time on their hands. If you need help, you can look through some payroll solutions here!
If your employees are part of a union, you should deduct any union dues from the final payment amount when you’re doing payroll. Keep in mind that these are an example of post-tax deductions, making them different from the pre-tax deductions we went through earlier.
So keep everything in order and make sure you’re calculating the union dues after removing the tax amount. Otherwise, you might be deducting too much.
The Final Garnish
The last thing you need to do before getting to the final dollar amount is to factor in any wage garnishments. These are like the other post-tax deductions, except these are mandated by the government.
People might face wage garnishment if they’re behind on child support payments or loan payments. This is an amount you withhold from the final paycheck. The appropriate government office will let you know where to pay that money so the garnishment can be recorded.
Once you have the final amount to pay your employees, you’re just about all set for payday! If you’re planning to pay electronically rather than through mail or in person, you should ask permission first—this should be an opt-in process.
For full transparency, you should include a pay stub along with the payment. This will let your employees know exactly how much you deducted at each step.
Try It Yourself
Once you know how to do payroll for a small business, you’ll be well on your way to a thriving team. If your employees get a sense that you know what you’re doing, this can foster trust in the whole work environment. And if it gets too complicated, you can always hire someone to help.