What Is Payroll?
A company’s employee payroll might be the largest single expense of a small business. It is comprised of the total wages paid to employees and other workers such as independent contractors. Processing payroll is also very complex, involving making deductions, collecting insurance premiums, collecting retirement contributions and calculating tax withholdings.
If mistakes are made with payroll, your business may face substantial penalties from the IRS and be subject to litigation from employees. This makes it extremely important for you to ensure that your payroll is completed properly. When you outsource your payroll to the accountants at Tom DiTullio Accounting, you may gain more confidence that it will be completed accurately and on time.
What makes up payroll
Payroll is divided into four main parts, including the gross wages, benefits and Social Security and Medicare withholdings and taxes. What your employees receive after the deductions have been made are their net incomes.
Independent contractors and freelancers are treated differently. Since they are not employees, they receive their gross pay without deductions. They are then individually responsible for paying their own taxes and purchasing their own benefits.
Why payroll processing is complex
One of the reasons that it is difficult to manage payroll is the required tax calculations and payments. Employers have to calculate the state and federal income taxes and then send the payments to the government. They must also submit withholding reports along with the payments that they send. Employees fill out IRS Form W-4 in order to specify their number of dependents so that withholding allowances can be calculated.
After calculating the allowances, the federal income taxes are calculated from the tax tables in Publication 15. These taxes are reported on IRS Form 941 and are paid at the same time that your company makes its Medicare and Social Security payments.
Payroll taxes must also be calculated for both the state and federal governments. Payroll taxes were the second largest type of revenue that the federal government had in 2015. In addition, employers are also required to submit 6 percent of their gross wages up to $7,000 per worker to fund the federal unemployment taxes for each worker. This is a business expense only and is not paid for from the employees’ pay. States also have their own unemployment plans, and if you have employees in multiple states, you will have to comply with each of their individual unemployment requirements.
Running payroll
While some small businesses run their own payrolls using accounting software, it is not advisable. When you try to complete your payroll on your own, you run the risk of making costly errors. It is also a very time-consuming task and takes away from your ability to attend to the other needs of your business. You would need to be able to set up new employees and to process the paperwork for different types of benefits such as health insurance plans. You would also need to withhold the proper amounts of state and federal income taxes, determine gross pay rates and collect all of the needed paperwork. Finally, you would then need to pay your employees their net pay amounts and send in the taxes and other withholdings on time and to the right recipients.
Get help from Tom DiTullio Accounting
When you choose to outsource your small business payroll to Tom DiTullio Accounting, you can remove the hassle of having to complete it yourself. Our experienced accountants understand the requirements and how to make the calculations accurately. We can pay your employees by paper checks that we deliver to your business in sealed envelopes or by direct deposit into their bank accounts. To learn more about how we can help, call Tom DiTullio Accounting today.
