Payroll accounting is a task that most entrepreneurs wish to shy away from. Most business owners, prefer to outsource their payroll obligations to an expert. This is the ideal scenario, however, you should understand the basics of payroll accounting yourself or hire an outsourced accountant to assist.
Once you learn how to do payroll, you’ll know how to prepare and make better decisions for your business.
This guide will show you everything you need to know about payroll accounting.
Employee Payroll
The first step is to understand the rules of employee payroll. You have to provide each new employee with a W-4 form. This form is for the employees to input their vital information for tax filing purposes. When you send them a W2 form for tax season, you have to use the information that’s on the W-4 form.
You also have to calculate how much you owe your employees on payday. You have to calculate their gross pay and have to figure out how much tax to withhold.
You also want to find a great payroll software to complete your payroll tasks. Additionally, you should consider creating paycheck stubs for your employees. These are records of how much they have earned during a pay period. You can find many great resources online on how to create check stubs like a pro.
Chart of Accounts
This is a list of accounts that your business requires to pay its expenses. This will keep track of how much money you spend on each expense.
This gets overlooked even by professional payroll services. But this can help you make decisions when it comes to employee paychecks. For example, if you have a high expense cost on necessary expenses you might have to forgo raises or holiday bonuses.
If you can cut down on expenses anywhere, you might be able to make way for these bonus payments. You might even have the budget for a new hire!
Always Keep Payroll Records
Employee payroll records must always be archived even after an employee leaves a company. These are records for employees for filing taxes and showing proof of work.
These employee payroll records are also evidence for resolving legal disputes. If an employee feels they weren’t compensated properly, you have payroll records as proof that they were.
These records are for employers to keep track of their lifelong expenses. This can help you track the growth of your company’s finances over time.
Part of the payroll accounting process includes looking back at an older chart of accounts. This is to see what accounts are still relevant and which ones can get cut off. These records help you make sound financial decisions for your company’s future.
Now You Know the Basics of Payroll Accounting
Follow these guidelines and you’ll see how payroll accounting isn’t as challenging as it’s made out to be. You’ll also find that it’s the best way to make the best financial decisions for your business.
With this experience, you’ll make better decisions when outsourcing payroll responsibilities.
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