Hiring employees is a good sign for your business, but it also comes with extra responsibilities. For example, you’ll have to set up a payroll system that ensures your employees get their wages on time while also withholding the right amounts for tax payments. Understanding how payroll systems are structured can help you avoid mistakes that can carry serious legal and financial consequences.

A Quick Guide to the Payroll Process

Filing W-4s

Every new hire is required to fill out a form W-4, which must be filed with the IRS and your state revenue agency. You’ll also need to set up a filing system for maintaining records. Employers are required to keep an employee’s records for at least four years after they leave.

Calculating Wages

Most small businesses pay their employees on an hourly basis, which means you’ll need to keep detailed records of their schedules. Calculating gross wages is a relatively straightforward process of multiplying their hours by their hourly pay.

Calculating Deductions

As the employer, it’s your responsibility to calculate deduct federal and state income tax, Social Security contributions, and Medicare payments. These funds have to be kept in a separate account from your operating funds until they’re delivered to the appropriate agency. You’ll also have to take out your employees’ health insurance premiums, 401(k) contributions, and other expenses.

Disbursing Funds

Some employers still write checks, but these days most employees prefer direct deposits into their bank accounts. Your payroll system should include a process for keeping employee bank information and a method for quickly distributing payments.

Calculating payroll can be time-consuming and stressful. That’s why business owners trust Linda M. Shiraiwa CPA, PS Inc. Based in Gig Harbor, WA, this experienced accountant has the expertise to handle every step of the payroll process, letting you focus on what you do best. Visit her website to learn how she can help or call (253) 858-6030 to make an appointment today.