In business, keeping a record of the activities happening in the operations of the company is essential. One of the documents that is necessary in order for the business to effectively operate is a payroll. For a company to be able to properly keep a record of all the necessary information and data, pay their employees, and calculate taxes, the business or organization will need to have a payroll. No matter which industry a particular business belongs to, a payroll is always important. A payroll can be complicated to do especially if you’ve recently started with the business industry. Having the right payroll system for your business and hiring the right individuals to manage your payroll is the first step that you need to do.
Organizations and businesses are required to have a payroll system to make it easier for them to calculate the monthly wages, salaries, bonuses, and deductions of their employees. A payroll is also needed to calculate the taxes that the employees need to pay the business, as well as the taxes that the business needs to pay the government. Without a payroll, a business can face legal consequences since it is a legal requirement before a business can operate to have a well-managed payroll system. In this article, we have listed some useful tips that will help you when creating your payroll, the definition of a payroll, as well as its importance. We have also provided the steps for creating one, including some payroll forms, templates, and samples that you can download on our website.
What Is a Payroll?
A payroll is a list that a business has that contains important components, as well as recommendations that help businesses in making the payroll process simpler. A payroll can also be defined as follows:
- A payroll is a document that is provided by the business to its employees on a monthly or bimonthly basis depending on how often the business pays their workers.
- A payroll is also considered a paycheck that outlines how much a particular employee is paid for that particular payday.
- A payroll contains the financial records of a business’s employees such as their salaries, deductions for days that are not worked, bonuses or commission, and withholding taxes that are to be deducted in their paychecks.
- A payroll also serves as a record of an employee’s total earnings within a year.
Essential Payroll Tips from a Tax Professional
When preparing your payroll, it is important that you include all the necessary components to ensure that you will have a complete and accurate document. This is especially important since it is one of the legal requirements needed by the government when your business files for taxes. Below, we have gathered some important tips that can help you avoid any mistakes when preparing your payroll. The tips are as follows:
- Never handle your business’s payroll on your own.
- As previously mentioned, preparing a payroll can be complicated and can also be time-consuming. Large penalties will be charged to your business should you delay your payroll tax returns and your withholding tax deposits. Unless you know what you are doing, it is necessary to ask guidance from a professional such as an accountant to help you handle your payroll. You can also make use of a payroll system to make it easier to calculate and record information and data of your employees.
- Always have an up-to-date record of your financial statements.
- Another important document that you should have prepared is your financial statements, specifically a profit and loss statement. This document contains a breakdown of your company’s profit or revenue, as well as the expenses that are incurred by the business for a particular period of time. Your profit and loss statement is essential in order to determine the current tax that the business owes to the government.
- Keep a second bank account for your business’s payroll.
- Separating your business funds with another bank account that contains the payroll as well as the payroll taxes is advisable since it makes calculating your taxes easier and simpler for your company.
- Frequently make federal tax deposits.
- Depositing your federal taxes as soon as a payroll is issued is essential since this will allow you to pay on time, avoiding any deductions and penalties. This also ensures that the money deducted from the employees’s payroll is deposited and not spent on other unnecessary expenses.
Payroll Tax Deductions That Are Collected
There are a number of tax deductions that a business has to collect from their employees, as well as the taxes that the business has to pay the government. These include the social security taxes; Medicare taxes; federal, state, and local income taxes. To help you further understand these tax deductions, we have provided a detailed description below that you can use as a reference.
- Federal Income Tax
- The federal income tax is paid by the employer or business to their country’s tax collection agency. This tax is deducted by the company from their employee’s gross pay depending on the total income. The income tax also includes the state taxes and the local taxes.
- Medicare Withholding Tax
- A Medicare withholding tax is also collected by the employer from their employees in order to cover the costs of each employee’s Medicare expenses or the health insurance costs. This type of tax deduction is also required by the tax collection agency.
- Social Security Taxes
- The social security tax deduction is both paid by the employer as well as the employee. An employer pays the other half while the employee pays the other half of the total amount of social security taxes to be deducted. An employee’s salary, bonuses, and other types of income are assessed depending on how much a particular employee is earning.
Now that you have a clear understanding of how payroll taxes work, ensure that you remember these tips to help you prepare your payroll. Furthermore, if you need other types of payroll templates and samples such as a payroll report template, payroll timesheet, and a payroll authorization form, you can download these samples on our websites should you need them. You can also browse through our website for cash flow statement samples, income statements, and so on.
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