Our experience as a payroll company and provider in Temecula, Corona, San Diego, and Riverside, California has revealed many potential pitfalls for business owners. To say the least, payroll processing is a time consuming and tedious exercise.
As a business owner, here are some of the things you need know:
1. Hourly or fixed salary basis
The way you calculate your employee’s gross pay and, eventually, the take-home pay will depend on the kind of rate you both agreed on, i.e. hourly or fixed. A fixed salary can be relatively easier to compute. It’s practically the same all the time. Hourly wages, on the other hand, can be more tricky.
2. Total hours your employees have rendered
If you pay your employees on an hourly basis, you’ll need to know how many hours they’ve rendered. You can get this information from a time sheet or from a time recording system. Determine which hours are regular working hours and which ones are considered overtime; when they took a vacation and when they probably got sick.
You should have a way to verify that this information is accurate and that none of the data could have ever been fabricated.
3. Federal, state and local taxes vary and can often change
These laws have provisions on minimum wages, exemptions/allowances, deductions, and other legal stuff. Not only do you have to keep up with the changes these laws undergo, you’ll also have to keep up with the deadlines they impose. Failure to do so can result in onerous fines.
4. There are lots of deductions to take into account
Regardless whether you pay your employee on an hourly or fixed rate, there are lots of deductions you need to include in your payroll computations.
Medicare, Social Security, Section 125 health plans, traditional 401(k), and Roth 401(k), are just some of the items you need to consider when deducting from your employees’ wages. Some of these have to be treated as pre-tax, while others have to be treated as post-tax. The way you deduct these two are not the same. Also, there are taxes that are mandated by law and there are those that are voluntary in nature.
5. There are laws that cover your employee’s personal information
The constant threat of identity theft has forced legislators to craft laws that protect personally identifiable information. There are rules that govern how you should store and transmit certain types of data like your employees’ full names, Social Security Numbers, birthdates, addresses, driver’s license numbers, and so on.
You have to know which of the data you handle require a higher level of protection. If any of these data falls in the wrong hands, you could face severe penalties.
5. Payroll services can help you focus on your business
Obviously, there are a lot of things you need to know when processing payroll. If you have to keep track of all these items, payroll processing can seriously trim down your staff’s productive time – time that could be used to grow your business. Take note that payroll processing is not a one time exercise. It is a regular activity.
By hiring a payroll service, you can assign your staff to focus on areas where they can contribute more to your bottom line.