Small Business Payroll Checklist

Payroll Checklist for Small Business Owners

Payroll is one of the most important aspects of running a small business. It involves paying your employees, withholding and remitting taxes, and complying with various laws and regulations. However, payroll can also be complex and time-consuming, especially if you don’t have the right tools and processes in place. To help you simplify your payroll tasks and avoid costly mistakes, we have created this payroll checklist for small business owners. This checklist covers the essential steps you need to take before, during, and after each payroll cycle.

Before Payroll

• Get an official employer identification number (EIN) from the IRS. This is a unique number that identifies your business for tax purposes1.
• Open the necessary withholding accounts for federal, state, and local taxes. You will need to deposit the taxes you withhold from your employees’ wages into these accounts1.
• Collect tax information from all your employees, including full-time, part-time, and freelance workers. You will need to have them fill out Form W-4 for federal income tax withholding, Form I-9 for employment eligibility verification, and Form W-9 for independent contractors21.
• Establish how your payroll works, such as the pay period, pay date, pay frequency, pay method, overtime rules, benefits deductions, and other policies213. Communicate these details to your employees clearly and consistently.
• Choose a payroll software or service that suits your needs and budget. Payroll software can help you automate calculations, deductions, tax filings, direct deposits, and reports. Payroll service providers can handle all or some of your payroll tasks for a fee24.

During Payroll

• Track and record your employees’ hours worked, including regular hours, overtime hours, vacation hours, sick hours, and any other paid or unpaid leave24. You can use a time-tracking software or app to make this easier.
• Calculate your employees’ gross pay based on their hours worked and pay rate. Gross pay is the amount of money your employees earn before any deductions are made24.
• Calculate your employees’ net pay by subtracting all the deductions from their gross pay. Deductions include federal, state, and local income taxes, Social Security and Medicare taxes, health insurance premiums, retirement contributions, garnishments, and any other voluntary or mandatory deductions24.
• Pay your employees on time and in full according to your payroll schedule and method. You can pay your employees by direct deposit, paper check, cash, or payroll card24. Provide them with a pay stub that shows their earnings and deductions for each pay period.

After Payroll

• Pay your taxes to the appropriate federal, state, and local authorities according to your tax payment schedule. You can use the Electronic Federal Tax Payment System (EFTPS) to pay your federal taxes online21. Check with your state and local tax departments for their payment methods and deadlines.
• File your tax forms with the IRS and state and local tax departments according to their filing deadlines. You will need to file Form 941 quarterly to report your federal income tax withholding and Social Security and Medicare taxes. You will also need to file Form 940 annually to report your federal unemployment tax (FUTA). For state and local taxes, check with your tax departments for their filing requirements21.
• Prepare and distribute Form W-2 to your employees and Form 1099-NEC to your independent contractors by January 31 of each year. These forms report the wages and taxes paid to each worker during the previous calendar year. You will also need to submit copies of these forms to the Social Security Administration (SSA) and the IRS24.
• Review your payroll records and reports regularly to ensure accuracy and compliance. Keep track of any changes in tax rates, laws, regulations, or policies that may affect your payroll. Update your payroll software or service accordingly. Maintain your payroll records for at least four years as required by the IRS24.

By following this payroll checklist for small business owners, you can streamline your payroll process and avoid common pitfalls. Payroll can be a daunting task for many small business owners, but it doesn’t have to be. With the right tools and guidance, you can manage your payroll like a pro.