Payroll Processing refers to the task of managing the payment of wages by a company to its employees. The steps involved in payroll processing typically include gathering employee time information for a selected time period, managing benefits & deductions, and distributing employee pay for that time period. Most companies use either a payroll software system for payroll processing, or else a third-party payroll processing service.
Your payroll process starts with collecting wage information for each employee. Businesses use a W-4 form to document the worker’s filing status and their allowances. You also need to carefully track wages for your employees. At the end of each pay period, you calculate gross wages. Companies have a variety of taxes that must be withheld from gross pay. You may also deduct amounts for retirement plan contributions. Many firms hire a payroll company to make all of the payroll calculations and to pay the amounts owed to employees.
I-9 Employment Eligibility Verification Form
The purpose of the I-9 form is to document that each new employee is authorized to work in the United States. This form must be completed in the Human Resources Department at the time of hire.
Social Security Number
All employees must have a social security number in order to be paid.
Federal and State Withholding Allowance Certificates
All employees must fill out federal W-4 and State NC-4 withholding forms. If these forms are not on file in the payroll office at the time that payroll is being processed, the assumption is that the employee is single with no exemptions.
Direct deposit of pay is mandatory for all university employees.
The IRS issues employee identification number (EIN) numbers. This 9-digit number is used on federal and state tax filings for businesses, including payroll tax reporting documents. You can apply for an EIN through IRS.Gov
The EIN number can be used for a variety of business entities, including sole proprietorships, S corporations and C corporations. This policy simplifies the tax filing process. You’ll need to register your fictitious names in the state where your business is headquartered.
Employers use Form I-9 to verify the identity and employment authorization of individuals. Every U.S. employer must have a completed Form I-9 for each worker hired, whether or not the individual is a U.S. citizen. To complete the form, an employee provides documents as evidence of their identity, such as a driver’s license, birth certificate, or passport.
An employer must retain each Form I-9 for a specific period of time, and a state or federal government official may ask to inspect the forms. Government agencies review I-9 forms to verify that each employee is authorized to work in the U.S.
Each worker completes IRS Form W-4 to indicate the amount of tax withheld from gross pay for federal income taxes. Employees complete similar forms for state income tax withholding.
Once a W-4 is completed, the employer uses IRS guidelines to calculate the dollar amount of federal income taxes withheld. Each state has similar guidelines to calculate state tax withholdings.
The payment schedules are published in IRS publication 15.
Withholding refers to the dollar amount of federal and state income taxes that an employer collects from a worker’s gross pay. The dollar amount is determined based on the IRS W-4 form and the state’s withholding form. The company sends the taxes withheld to the IRS and the state’s department of revenue.
The dollar amounts withheld are reported to the worker on Form W-2 after year-end. It’s the employee’s responsibility to file their personal tax return and calculate their tax liability. The worker subtracts the W-2 taxes withholdings from the tax liability, and any remaining amount of taxes owed should be paid when the tax return is filed. This process applied to both federal and state taxes.
In addition to withholding taxes, employers may also withhold the worker’s share of payments for insurance premiums, retirement plan investments, and other benefits. The worker decides on the amounts withheld for the payments. Once these payments are withheld from gross pay, the employer forwards the payments to each third party (insurance company, investment firm, etc.)
Businesses purchase workers comp (compensation) insurance policies to pay for medical care and other costs if a worker is injured or killed while working on the job. The insurance policy pays for medical expenses and makes payments to the injured party based on a state’s workers’ compensation laws.
The insurance premiums are based on the total dollar amount of payroll a company pays, and the type of work performed the employees. If workers perform manual labor or work in jobs that expose them to physical injury (such as construction), the insurance premiums will be higher.
Construction, engineering and other firms that have a higher risk for worker injury need to have safety plans in place to reduce the risk of work place injuries. If you can limit worker injuries, you can keep your insurance premiums at a reasonable level.
There are state and federal labor law poster requirements for businesses. The posters address worker rights related to the federal minimum wage, equal employment rights, and worker safety, among others. Companies can purchase ~~all-in-one~~ posters for both federal and state labor law requirements. The posters should be displayed so that employees can see them each day. The posters are typically posted in a break room.
A Payroll Company can perform many of the complex tasks required to process payroll accurately. To get started with a payroll company, a business provides the gross pay and withholding amounts for each employee. The payroll company uses current tax laws to calculate the correct tax withholdings and also withholds any benefit payments.
You can give a payroll company access to your corporate bank account, so that the company can send each net pay amount to employees. This outside firm submits the payments withheld to the IRS, state revenue departments, and any other third parties. The company will complete all payroll reports and create W-2s and 1099s at year-end.
Every business should consider using a payroll company. This decision will help you save time and ensure that your payroll processing is accurate.
Quick Books offers a number of payroll solutions ranging from simply cutting checks to full-service payroll. All payroll products integrate directly with your accounting software to keep your books in order with less work.