A Step-by-Step Guide: How to Run Payroll Efficiently
Do you remember a time when it was simple to run payroll?
All you had to do was figure out each employee's gross pay and subtract their federal, state, and local taxes. Then, maybe three or four other deductions and write a check for each employee’s net amount.
But everything changed, and along came 401(k) plans, direct deposit, vehicle allowances, the Earned Income Tax Credit, garnishments, pay cards, cafeteria plans, third-party sick pay, and a bag of other deductions.
To run payroll is a time-consuming task for many businesses. Depending on the company's size, it may take a day or more. This is just to produce paychecks. Remember that you also have to generate various files and fill out reports.
Unless you are an accountant, have one, or use a payroll service to set up payroll, it can be confusing and time-consuming. As a new employer wondering how to do payroll, you may face challenges figuring out how to make payroll.
Similarly, seasoned employers sometimes need help with how to conduct payroll in new situations or when payroll laws change. So, what’s the solution to run payroll efficiently? A process that covers everything from entering your employees’ details into your payroll software to issuing their paychecks.
Here is a step-by-step guide on how to run payroll, even if for one employee, to prepare you for payday.
Step 1: Pick a Payroll System, Create a Payroll Policy and Run Payroll
At this point, you have your preferred payroll system and have implemented or are creating your payroll policy- these things take time and evolve quickly. You may choose from three main ways to manage your payroll:
- Manual (anyone still doing it this way?
- outsourcing (someone else handles everything),
- Payroll software
When considering how to prepare payroll solutions, consider your business growth, employee benefits, and your state's payroll taxes. Assuming you settled on Quickbooks to run payroll, you first need an Employer Identification Number (EIN). This unique code identifies your business and must be set up with the Internal Revenue Service (IRS).
Next, create a payroll policy to help the payroll department on how to do payroll. Your payroll policy can cover the following:
- All local and federal labor laws
- Unpaid overtime rules
- Eligibility for overtime pay
- Pay dates
- Payment methods
- Ways to track time and attendance
- Paid and unpaid breaks
- Pay periods per year
- How to request time off
- Company’s workweek
- Wage structure
- Payroll record-keeping processes
- All other required deductions
- How benefits affect paychecks
Your payroll guide should answer all the following questions if presented by employees:
- How To Make Payroll For Employee
- How To Prepare Payroll
- How To Complete Payroll
- How To Start Payroll
- Doing Payroll
- Is Doing Payroll Hard
Step 2: Ask for Employee Withholding Certificates From Your Staff
Next, on how to do payroll is to gather your employee information to help you run payroll procedures for the company’s, including:
- Employer Identification Number (EIN)
- State and local tax identification numbers
- tax information
- Wage or salary details
- Direct deposit data (if you pay via direct deposit)
- Federal and state withholding accounts
- Payroll budget account
- Payroll Schedule
- paper checks or direct deposit service
- Your tax payment schedule
Ensure all information gathered is accurate before adding it to QuickBooks to generate accurate paychecks. Qbox gives you locking technology to avoid creating conflicting copies. It gets better because if you need to share files across platforms or users, reduce the commute to collect client files, or avoid files missing key updates, you only have to integrate Qbox with your payroll system to cover all.
Besides the considerable time savings Qbox injects into your workflow, you get overall security in your service offering, especially true if you are a payroll processing provider. Click here to learn how to do payroll with the QuickBooks Enhanced Payroll – Desktop Edition.
So what’s next in our how to do payroll journey?
Step 3: Set Your Payroll Schedule
How frequently do you or will you run payroll? You have four pay schedules to choose from depending on your business type:
- Monthly: 12 paychecks annually
- Semimonthly: 24 paychecks annually
- Biweekly: 26 paychecks annually
- Weekly: 52 paychecks annually
Each payroll schedule option has advantages and disadvantages, so you should consider them before deciding which is best for your business. After you have a schedule to run payroll, input all paydays, quarterly tax dates, holidays, and annual tax filing dates. Adjust and reevaluate your payroll calendar every year.
Step 4: Calculate Gross Pay
Gross pay is your employee's total pay before any taxes or deductions. Your employee’s gross pay depends on whether they are salaried or are on an hourly wage. For an hourly employee, track their total work hours to get their pay for every worked period.
Cross-check timesheets for standard and overtime hours, considering your state’s overtime laws. QuickBooks Time, an add-on, can help you with this process in your payroll process. For example, exempt employees don’t get overtime; non-exempt employees may get higher overtime pay rates than regular hours.
Salaried employees' gross pay depends on their annual salary and the total pay periods per year. Remember to factor in commissions, bonuses, merit pay, incentives, and profit shares for accurate pay.
Step 5: Make Payroll Deductions
Get all your workers’ W-4s information and federal, state, insurance, and benefits requirements to determine each employee’s deductions. This part requires a bit of math because each state collects different taxes from businesses. Research your state’s policies to complete this step.
Some standard deductions include:
- Mandatory federal and state deductions like Medicare, FICA, and Social Security.
- Any post-tax deductions, such as health insurance and charitable contributions.
- 401(k) contributions
- Local taxes
- Workers’ compensation premiums
The above applies case-by-case, but you must consider them when you are about to run payroll.
Step 6: Calculate Net Pay to Pay Your Team
After each of your employee’s deductions, what’s left over is the employee’s take-home pay or net pay. Once you establish each employee’s net pay, you release the payment on the scheduled payday.
Every employee appreciates a correct and timely paycheck, which works well for your business’s success. Some ways to pay your employees include:
- Paper checks- mailed or issued at the office
- Direct bank deposit to their accounts
- Prepaid cards with their net pay
- Deposit into their employee Mobile wallet
- Cash (requires detailed recordkeeping and has safety concerns)
Step 7: File and Report Your Payroll Taxes
The final step in how to do payroll is to file and report your payroll taxes as required by the IRS, which includes:
- Depositing federal taxes to the IRS using electronic funds transfer (EFTPS)
- Filing state tax reports according to individual pay schedules and code
- Making Federal unemployment tax payments
How to do payroll extends beyond paying your employees and requires you to follow state laws and stick to the Fair Labor Standards Act (FLSA). It's important because you may bear heavy costs if you don’t comply with the withholding, tax remittance, and report filing requirements in handling your business payroll processing.
Get the Right Tools For Payroll Processing
These basic steps and the right tools make all the difference. You need powerful payroll software, from setting up your EIN to filing payroll taxes. QuickBooks integrated with QBox provides a comprehensive solution simplifying the payroll process.
You save time and money while ensuring compliance with federal regulations - so you can focus more on running and growing your enterprise.
There’s just one problem: using QuickBooks files to run payroll in file hosting services may corrupt your files because they’re not designed for syncing programs. So what’s the solution? The trick is to integrate Qbox. The fastest-growing QuickBooks desktop sync/collaboration tool to sync all your payroll files. Sign up today and enjoy the first 30 days free.
Frequently Asked Questions (FAQs):
What does it mean to run payroll?
A process that covers everything from entering your employees’ details into your payroll software to issuing their paychecks.
Does run payroll have an app?
Yes. A payroll check app is an application that is used to run payroll for your employees.
Do you need software to run payroll?
It depends on the size of your business and the calculations you need to do. Besides, payroll software speeds up your payroll calculations, keeps you on top of rates and allowance changes, and helps avoid computational errors.
Is it difficult to do payroll?
Payroll procedures difficulties vary because of many factors, including employee classifications, your pay scales, terminations and promotions and terminations. But with proper checkpoints, you avoid these difficulties.