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How to Do Payroll for Small Business: Essential Tips for Accurate Processing
by Alifia • ศ., 20 ก.ย. 2024 10:09ก่อนเที่ยง
Get a practical overview of payroll processing for small businesses. Discover the process, key steps, best practices, and important considerations in determining the most efficient approach to payroll.
Regardless of the company size, accurate and timely payroll processing is important. For bigger companies with a lot of employees, automating payroll is the best option to avoid errors and miscalculations. Conversely, for small businesses with fewer people, managing payroll manually and internally is still feasible.
The primary difference between payroll for large and small businesses isn’t just the system used. Larger companies often handle payroll for multiple locations and currencies, making calculations more complex. In contrast, small businesses typically have simpler payrolls due to fewer branches or none at all.
Another difference lies in who handles payroll. Big companies usually have dedicated payroll departments to manage the complexities and ensure compliance. Meanwhile, in small businesses, owners or managers are often more directly involved in payroll management. For those in such situations, the following steps can help in managing payroll for small businesses.
A Step-by-Step Guide to Payroll Processing
Manual payroll processing is infamous for its tediousness. But while there are many steps involved, it’s not overly complicated. Generally, there are five steps to manually processing payroll. However, it is important to remember that different countries have different tax regulations, so these steps should be viewed as a general framework.
Establish a Tax Identification Number
Every legal business must have an identification number to verify its legitimacy. This number goes by different names in different countries– such as an Employer Identification Number (EIN) in the U.S., a Unique Entity Number (UEN) in Singapore, or a Nomor Pokok Wajib Pajak (NPWP) or tax identification number in Indonesia.
This identification number is important because it allows the government to track business activities and tax obligations. It’s also used to open a business bank account, file employment taxes, and conduct other financial transactions, so it is also important for payroll processing. If the business doesn’t have a tax identification number yet, registration with the local government is necessary.
Collect Employee Tax Information
The next step is to gather employees’ tax information. Each country also has its own system for this. For example, US employees have to fill out specific forms to give their personal information, like the W-4 form, I-9 form, or 1099s. In Singapore, there are employee records that include information such as the employee’s address, NRIC / Work Pass number and its expiry date, date of employment, working hours, and leave taken.
Generally, this kind of information is collected during the onboarding process. While there’s no need to collect employee information for each payroll period, it’s advisable to update the employee data every six months or annually to ensure accuracy.
Set a Payroll Schedule
Establishing a payroll schedule ensures timely payment to employees. The most common pay schedules are monthly, semimonthly, biweekly, and weekly. When choosing a payroll schedule, consider what’s most effective and convenient for business operations.
Calculate Gross and Net Pay
Once the payroll schedule is set, payroll processing can begin. Start by calculating each employee’s gross pay. Gross pay means the total salary based on hours worked multiplied by the hourly rate, including overtime.
After getting the gross number, determine each employee’s deductions. Employee deductions can vary depending on location and business circumstances. Common deductions include income taxes, healthcare contributions, retirement plans, and compensation for damages or losses.
Subtract these deductions from the gross pay to calculate the net pay. After accounting for any employee benefits, the take-home pay for each employee will be determined.
Pay Your Employees and Keep Payroll Records
After completing calculations, pay employees on the scheduled payday. Common payment methods include direct deposit, paper checks distributed at the office or mailed to personal addresses, mobile wallets, or cash.
Lastly, when the payroll period is over, make sure to maintain accurate records of all transactions. Recordkeeping is important for tax and compliance purposes. It will also come in handy if there’s ever an audit or discrepancies.
Final Thoughts
Small businesses have the opportunity to significantly reduce operational expenses by opting to handle payroll manually, which can eliminate the need for additional service fees typically associated with payroll software or outsourcing payroll services.
However, while the process of manual payroll management for small businesses is not overly complicated, it does require careful attention to detail. Because mistakes in payroll calculations can have serious consequences for the business. Additionally, the time and resources spent on manual payroll management can divert attention from other critical business operations.
Therefore, while the potential for cost savings is significant, small businesses should carefully evaluate these advantages against the risks and challenges associated with manual payroll processing. It is essential to consider all available options and select the most effective approach based on the current business requirements.
Next Read: A Comprehensive Look at Payroll Service Provider to Increase Business Efficiency
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How to Do Payroll for Small Business: Essential Tips for Accurate Processing
Get a practical overview of payroll processing for small businesses. Discover the process, key steps, best practices, and important considerations in determining the most efficient approach to payroll.
ศ., 20 ก.ย. 2024 10:09ก่อนเที่ยง
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