As your business expands, it’s important to make sure you comply with local and state regulations that affect you as an employer. If you plan to launch operations in a new state, chances are you’ll be required to register as an employer. Depending on state laws and the amount of business you conduct in the new state, you may be required to withhold state taxes from payroll checks and contribute to the state’s unemployment and/or disability insurance fund.
If you’ve decided to retain a payroll service to manage the hassles and ever-changing regulations involved with calculating and distributing employee pay, then congratulations. You’ll soon have more time to do what you went into business to do in the first place: deliver top-quality products and services to your customers.
Manual time and attendance systems use paper time cards and time sheets that employees fill out and managers oversee for accuracy. However, time and attendance information is subject to human error when various employees such as workers, managers, and payroll administrators all perform tasks that involve recording the numbers. Employees punch in and out when they arrive at work, go to lunch, take a break, or leave for the day.
The Electronic Federal Tax Payment System (EFTPS) is an electronic system for making depository tax payments such as employment tax, excise tax, and corporate income tax to the U.S. Department of the Treasury (USTREAS). The Automated Clearing House (ACH), which the Federal Reserve runs to transfer funds electronically, is also used for wage direct deposits, Social Security direct deposits, and EFTPS deposits.
More and more businesses are outsourcing payroll management to service providers. In today's competitive, fast-paced commercial world, the businesses that operate cost-effectively are the ones that survive. And all too often, when small businesses try to pinch pennies by "do-it-yourself" methods, their business takes a 180-degree turn from the direction they planned. Internal payroll management can be stressful, costly, and problematic come tax time.
These days, many employers use direct deposit to issue paychecks. This eliminates the need to print and distribute checks. It also eliminates the possibility of physical checks being lost or stolen. However, paying via direct deposit generally requires that employees have bank accounts. Some employees do not have bank accounts, and in certain industries, the percentage of “unbanked” employees is fairly high. Additionally, changes in the banking industry are resulting in higher fees, so more and more employees may choose to forgo a checking account altogether.
Processing payroll involves calculating each employee's pay based on hourly or salary rates, calculating Social Security, Medicare, local, state, and federal withholding taxes, and other deductions. Keeping balance sheets, certain records, and reports are also vital for tax filing.
While all this sounds straightforward enough, tax laws are complex and ever-changing, and other related payroll activities can be quite detailed. For these reasons and others, business owners are increasingly looking to outside payroll companies to handle many of these functions.
When you hire a new employee, there are a number of steps you must complete. After you verify the employee’s eligibility to work in the United States by completing Form I-9, you’ll need to ask the employee to complete Form W-4 to determine the federal tax withholding amount.
Next, you’ll need to record the employee’s name, address and Social Security number. Once you take care of federal tax withholding, you’ll likely be required to calculate state withholding since 41 states and the District of Columbia collect state taxes.