When establishing a business, you’ll need to take many steps before your business can scale. You’ll need to develop a business plan, get a federal tax ID, and secure financing for your business…and that’s just for starters. And yet, one of the most important priorities when starting your business is establishing a payroll management system.
So what is payroll and why is it so vital for your business success?
Payroll is the business process of paying employees compensation for their work. Payroll systems can be done within the business or outsourced to an outside business specializing in payroll management.
If you choose to keep payroll in-house, you will probably handle this task through human resources. You might also designate a business manager or another professional within your business. Regardless of your chosen approach, you need a comprehensive payroll management system that works.
If you plan on establishing a business or have recently started a business, keep reading. Below is everything you need to know about payroll management and why it is crucial for the longevity of your business.
Accurately Track Employee Taxes and Wages
Whether you have 1 or 100+ employees in your business, having payroll management is one of the most crucial assets for your business.
Payroll management plays many key roles. It can help businesses stay organized and consistent. It can help you calculate employee wages and taxes. If you hire W-2 employees, you will need to deduct taxes from their paychecks. These include federal and state taxes, social security, and Medicare.
In addition, if your company offers insurance, 401K, or other employee benefits, that will also need to be deducted from an employee’s paycheck. By establishing payroll management early on, you can easily keep track of the wages you are paying out each pay period, as well as deductions from your employees’ paychecks.
It’s essential to track payroll deductions. Every business must report these deductions to the IRS. By establishing a payroll management system from the start, it’s easier to keep a paper trail, should the government need supplemental documentation of your business expenses.
Pay Your Employees and Contractors on Time
Employees play an integral role in many businesses, large or small. It doesn’t matter whether you are running a restaurant or operating a manufacturing plant. It’s important to pay your employees fairly and on time.
Putting a system in place to manage payroll can go a long way toward making sure your staff is paid accurately — and in a timely manner — regardless of whether they receive wages on a semi-monthly or biweekly basis. In addition, whether you hire W-2 employees or 1099 contractors, keeping to a regular payment schedule can help with employee retention and productivity.
For many businesses, one of the easiest ways to stay organized is by using payroll software, which not only tracks wages and taxes but also ensures employees are paid on time without breaking a sweat.
Save Time and Money
While many business owners understand the importance of payroll, some business owners find the process complex and overwhelming. Not only is payroll one of the biggest tax deductions for many businesses, keeping track of deductions can be daunting.
Business owners have the option of either keeping their payroll management in-house or outsourcing it to other businesses who specialize in payroll management.
There are many benefits to outsourcing payroll management, but it can be incredibly expensive. Many business owners do not have the budget to outsource it. By establishing an in-house payroll management system, business owners save time and money in the short-term. (They can also save themselves from an IRS audit later on.)
Stay in Compliance with Tax Regulations
Establishing your business is a labor of love. There are many additional- benefits to owning a small business.
However, there are many challenges associated with business ownership. For many, one of the biggest challenges is handling payroll. Not only is payroll one of the biggest business deductions, there are many payroll processes businesses have to be in compliance with, both on the federal and state level.
In many cases, this can also include local tax regulations. The Fair Labor Standards Act (FSLA), Equal Pay Act (EPA), Federal Unemployment Tax Act (FUTA) and the Federal Insurance Contributions Act (FICA) are just some of the many tax laws employers must be in compliance with in order to run their business. By having a payroll management system from the start, you are more likely to be in compliance with tax regulations.
Build Your Business to Be More Scalable
For many business owners, one of their biggest goals is growing their business. This can include fulfilling more orders, hiring more staff members, or even franchising their business.
However, in order to scale their business, business owners need payroll systems that scale with them. By establishing a payroll management system early on, businesses have the potential to scale their business.
As many businesses grow, payroll costs typically decline. This is especially true if there is a comprehensive, scalable system that is already in place.
Even while your business is in its early stages of development, creating a comprehensive payroll management system is an essential piece of the puzzle. Not only does it ensure that you pay your employees on time, it protects your business from many potential liabilities. Payroll management can make or break your business growth model.
