Nashville Tenn. CPA Firm with Your Business in Mind.
Payroll is Critical
Payroll is an important part of any business. Payroll is an important task even if you only have one employee. If you don’t track payroll correctly, it can cause problems. Problems can also be created if you are unsure about how payroll taxes and other payroll legal requirements work.
Payroll is the amount that is to be paid to an employee. This amount covers the agreed rate of pay, the amount of time worked, and any deductions needed. That is the simplest form of payroll. Payroll is usually managed in the human resources department of a larger company. A small business may hire a bookkeeper or an accountant to help with payroll tasks. More often now, outsourcing payroll happens especially in small businesses. Companies can also use payroll software to help with payroll responsibilities.
A company can take care of their own payroll. They need a list of all the employees that work there. They need the amount that the employees are supposed to receive. They also need to know the amount of time worked by each of their workers. They gather this information. Then, they add to find the total that is owed to the worker. Once the total, or gross, is known, deductions are taken off. These deductions include taxes. Taxes are mandatory. They consist of Medicare, Social Security, and Federal income tax withholdings. Some companies may also have payroll deductions for State and Local taxes. There are payroll deductions that can be given by the company. The company may offer employee benefits. The employee can opt out of some of these benefits. These could be insurance, 401K, pension, stock options, HSA, FSA and bonuses. Some companies also offer paid sick time and paid vacation. Some deductions that payroll may have to account for could be court ordered such as child-support, defaulted student loans, or unpaid court fees. Once the gross is totaled and deductions are taken, the paycheck is ready to be cut for the net income amount. The check will also give the worker information about gross pay and deductions. Checks could be given in the form of direct deposit. The company will have the worker’s bank account information and deposit for the employee. The employer will then provide the employee with a paystub in paper or electronic form.
Payroll is not just paying employees. Payroll covers accounting and record keeping as well. Payroll is responsible for paying employee taxes, employer taxes, and freelance taxes. Payroll will also need to keep records for employees and the company. It is easy to get payroll record keeping wrong. These payroll mistakes are simple mistakes that are easy to make. You need to update records regularly. The records need to be maintained for a long period. You need to have accurate and updated information on workers. If you decide to outsource, you need to provide accurate information. Keeping good records in a safe location for an extended amount of time is important. These records may be reviewed by the IRS for an audit or by the company for analysis.