How to do payroll for a small business

Business is good, your employees are happy and you are developing a loyal customer base. But there may still be a piece of the puzzle missing in your small business operations: finding a way to reduce the drudgery of payroll.

But paying staff, keeping records, and managing taxes doesn't have to create extra hours for you every week. With the right process and the right tools, you'll spend more face-to-face time with employees and customers and prevent payroll from eating into your free time.

That's why we created this guide to managing payroll for small businesses. We cover everything from payroll setup, to what you need to know when it comes time to file your taxes, to the software you can use to simplify payroll and everything in between.

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Step 1: Understand payroll laws and regulations

Often it's not just the physical act of managing payroll that eats away at your day; it's about understanding the complex rules and regulations behind the time-consuming process.

Compliance with payroll laws and regulations is essential to avoid serious legal and financial consequences. So it's important to get it right. And that can mean keeping track of many moving parts – think local, state, and federal tax regulations, as well as wage and hour laws.

For example, each state has unique payroll requirements, and failure to meet these can result in fines or even legal action.

You must also correctly classify staff members as exempt or non-exempt, which will determine whether they are eligible for overtime pay and other Fair Labor Standards Act (FLSA) protections.

This does not mean that it must be precisely determined whether workers are independent contractors or employees. Up to a third of employers incorrectly classify staff as independent contractors, a mistake that can cost hundreds or even thousands of dollars in penalties.

Learning and keeping up to date with all these regulations can seem like a job in itself. That's why we recommend using a tool like Homebase HR and Compliance, which can track all of your employees' hours in one place and help you stay on top of wage and hour laws, especially regarding breaks and overtime.

Our platform can also notify you when employment laws change at the state or federal level, and our team of HR professionals are always there to review your procedures and provide advice when you feel lost.

Step 2: Configure payroll systems

Once you have a general understanding of the laws and regulations you need to follow, it's time to register your business with the government. This means registering your business name with local and state governments and applying for your Tax ID or Employer Identification Number (EIN).

But one of the most important steps when managing payroll for your small business is selecting and setting up your payroll system. And choosing a manual process can be tricky, as it can mean extra hours of work and costly mistakes.

So look for payroll software that makes it easy for you while helping you maintain accurate and efficient payment systems. Some features to look for include:

Instantly convert timesheets to hours and wages so they're ready for payroll Automatic tax return and issuance of W-2 and 1099 Automatic issuance of payments to employees, the state and the