Payroll accounting is essential for any business. The basics of accounting for payroll and its implementation are important for the survival of organizations of all shapes and sizes.
Whether you are running a small-scale business or a large-scale industry, payroll accounting plays an important role. When you are planning to hire your first employees, it becomes imperative that you know payroll accounting as well as its management. However, for many business organizations out there, particularly start-ups, it turns into a challenging task to achieve payroll accounting as well as its management successfully. Here, we will help you unravel how to do payroll accounting for your business seamlessly.
What is the need for payroll accounting?
Payroll accounting is the process of tracking business expenses related to payroll. This includes individual employee compensation as well as payroll taxes, employer portions of government benefit withholdings, employee benefit payments, and other deductions.
Payroll accounting systems guarantee that you do not just monitor your payroll costs, but also comply with local, state, and government employment laws and don't run afoul of any tax rules.
Without payroll accounting, you can't get an exact perspective on the total cost of your employees. This makes it hard to understand the incremental cost of each additional employee you recruit, and furthermore, to decide whether to hire full-time employees, contractors, or part-time employees when you need to add to your workforce.
The Basics of Payroll Accounting
Payroll accounting is referred to as the most common way of recording and maintaining employee compensation. It includes the task of monitoring cash that has been withheld from the paychecks of employees and calculating their share of advantages as well as taxes on both employees and employers. A few types of employee compensation include:
- Contract employees
- In addition to the compensation, payroll accounting also includes withheld taxes.
- Medical taxes
- The government withholds taxes.
- Social security taxes
- State withholding taxes (if applicable)
A few additional elements of payroll accounting include retirement accounts, medical coverage, wage garnishments, and more. While these may seem similar, these elements are not accounted for in a similar way. While a few of these are considered liabilities, others are viewed as expenses for your business.
Payroll Accounting Tips for Businesses
When it comes to payroll accounting for businesses, a normal payroll system is known to compromise on three significant elements: paying the workforce, planning, and paying taxes related to payroll and accounting for the tax reforms.
Paying the workforce
Whenever you want to achieve employee satisfaction and improve productivity, pay the right amount of labour at the right time. Whether you are paying the workforce on a weekly, monthly, or quarterly basis, the payment made to the workforce concerning payroll accounting is fundamental. It tends to include everything right from monitoring the worker's work hours to processing withholding charges, delivering paychecks, and making direct payments to the bank accounts of the employees.
Preparing and Paying Taxes Related to Payroll
When you have deducted the saved portion of taxes from the salaries of the concerned staff, it becomes a necessity that you submit the individual taxes to the concerned authorities, including the Federal and State Governments. Based on the state or region in which you set up your business, a few of the withholding taxes that could apply:
- Self-employment tax
- Government tax<\li>
- Additional Medicare tax<\li>
- Local and state taxes<\li>
- Taxes on Medicare and Social Security<\li>
- SUTA (State Unemployment Tax)<\li>
- FUTA (Federal Unemployment Tax).<\li>
- Laborer's compensation insurance<\li>
In general, the three crucial tax deductions concerning payroll accounting include Social Security Tax, Federal Income Tax, and Medicare Tax.
Understanding the Common Payroll Methods
If you wish to run a successful business, you should guarantee precise as well as timely processing of your payroll accounting. As the IRS comes with a set of explicit guidelines and regulations with respect to keeping and filing taxes, it becomes important for you to put resources into the best possible payroll tool out there that suits your business requirements as well as complies with the given IRS guidelines. You must also ensure employee satisfaction, as employee performance and productivity can play a critical role in ensuring timely and accurate payments.
Manual or DIY Method:
The vast majority of businesses out there, specifically those having a handful of employees, will generally prefer the manual or DIY payroll accounting method. To do this successfully, it is crucial to keep a proper spreadsheet that helps in tracking hours of employment by each employee, along with calculating taxes, processing paychecks, and more. In addition, you are expected to calculate and file payroll taxes physically.
Hiring an Accountant
A professional accountant can be very beneficial to your business if you are looking for an in-house accountant and management. You can also consider recruiting a part-time or full-time accountant based on the size and requirements of your business.
Using Payroll Software:
The main aim of a reliable payroll software solution is to streamline and automate the process of paying the concerned workforce. The primary duties of payroll software include processing, deducting employee compensation, preparing pay-slips, filing employee taxes, and complying with respective regulatory requirements.
Payroll is one of the basic parts of any business. Therefore, it becomes fundamental for you to set up a well-defined payroll accounting process for any business and management process to guarantee maximum profitability. A good payroll system not only saves time, effort, and money, but it will also take care of financial accounting, cost accounting and help your business to grow.