Managing payroll is a crucial task for any small business to ensure compliance with laws and accurate payments to employees. While some business owners choose to handle payroll themselves, utilizing payroll software or outsourcing to a payroll service provider can save time and reduce stress. To get started, you’ll need an Employer Identification Number (EIN) from the IRS, which identifies your business for tax purposes. Here’s a breakdown of why you need a payroll checklist and what it should include.
Why a Payroll Checklist Is Important
Handling payroll can be complicated, especially as your business grows. Common errors include:
- Forgetting to add new employees
- Continuing payments to former employees
- Miscalculating wages, benefits, taxes, and deductions
- Omitting essential details
These mistakes not only affect your financial records but could also lead to legal and compliance issues. A payroll checklist can help you avoid these pitfalls and ensure accurate processing every time.
Key Elements of a Payroll Checklist
To avoid errors, follow these steps when processing your payroll:
- Review Your Workforce
Changes in your workforce, such as new hires, terminations, address updates, or pay adjustments, directly impact your payroll. Always verify that the payroll information reflects any changes in your team. - Complete and Submit Timesheets
Accurate timesheets are essential for payroll. Ensure all hours worked, including for full-time, part-time, and freelance employees, are properly recorded. The typical full-time schedule in the U.S. is 35 to 40 hours per week. - Enter Additional Payments
Besides salaries and wages, include bonuses, commissions, retroactive payments, and any other additional earnings when calculating gross payments. This ensures that employees are paid accurately. - Review Taxes and Deductions
Payroll taxes are a key part of compliance. You must deduct federal, state, and local taxes based on each employee’s residence and tax status. In addition, deduct benefits such as health insurance premiums, workers’ compensation, and retirement contributions. After these deductions, the remaining amount is the net pay each employee should receive. - Review Net Payments and Distribute Them
Before disbursing payments, double-check every detail in your payroll. Even small errors can result in hefty fines and penalties, so thorough review is essential.
Information Needed for Payroll Processing
Before you start processing payroll, you need several key pieces of information:
- Employer Identification Number (EIN)
- Tax identification numbers for employees
- Tax details for all workers, including freelancers and part-time employees
- Employee remuneration details
- Payroll schedules for taxes, wages, and benefits
- Payroll budget account
- Federal and state withholding accounts
- Direct deposit details for employees, where applicable
With the right payroll checklist, you’ll be able to process payroll with confidence, ensuring compliance and accuracy every time. Keeping organized records and following a structured process will also make it easier to manage future payroll periods and stay in good standing with the authorities.
