A payroll system is the channel through which the employer processes its payroll. Specifically, the employer cannot process its payroll without a payroll system. The U.S. Department of Labor requires employers pay employees’ wages accurately and on time. Furthermore, the Internal Revenue Service (IRS) and the state revenue agency have payroll tax regulations that employers must follow. When choosing a payroll funding system for a small business, select the one that best satisfies your federal and state payroll requirements.
Manual System for a Small Business
A manual payroll system requires the payroll representative to process the payroll entirely by hand. This includes manually calculating time cards, wages, salaries, payroll taxes, wage garnishments, and voluntary deductions. This system has a high room for error and can be time consuming; therefore, use it only if there are few employees, such as 10.
Payroll tax and wage laws are ever changing and complex; ensure the payroll representative has solid knowledge of applicable regulations. For its timekeeping system, the employer can purchase standard timesheets from a stationary shop, or make them via a spreadsheet program or a typewriter. Payroll files can be stored in filing cabinets and storage boxes in a confidential location. The manual payroll system does not enable direct deposit, so paychecks must be handwritten or printed on a typewriter.
In-house Computerized System for a Small Business
If the employer wants to simplify its payroll, it should invest in payroll software, which accelerates payroll processing and increases accuracy. Payroll software, such as QuickBooks, Sage Peachtree, and PenSoft are commonly used by small businesses. The software calculates paychecks based on the inputted data, and has the federal and state tax withholding tables hard-coded in the system. Payroll software generates and prints paychecks; enables direct deposit, report printing, and W-2 processing; and stores payroll data.
If the employer uses a computerized timekeeping system, it can import employees’ time from the timekeeping system into payroll software. Payroll software vendors have packages designed to match payrolls of different sizes and complexity.
External System for a Small Business
Payroll processing requires keen attention to detail and can be time consuming. Sometimes the employer doesn’t want the burden of this task. Consequently, more and more small businesses are turning to the external payroll system, in which they entrust their payroll duties to a payroll service provider. For a flat fee, the latter processes its clients’ payroll, regardless of size.
Many payroll service providers offer payroll tax and benefits administration services. But, keep in mind that, according to the IRS, the employer is responsible for any tax errors that a third party makes. Therefore, if the employer decides to take this route, it should designate an on-site person to serve as a liaison between the company and the payroll provider.