If you’re thinking about hiring employees, you need a plan for payroll. But with the added expense of wages and benefits, you might not be too keen on the high price tag that comes with outsourcing payroll. Fear not—you can learn how to do payroll yourself.
How to do payroll yourself
You might be wondering, Can I do payroll myself? Will I be more prone to errors? How much time will it take?
When you handle payroll on your own, you can either do everything manually or use software. Regardless of which method you choose, you must start by gathering some information.
To run payroll for your employees, you first need information such as:
- Federal Employer Identification Number (FEIN)
- Tax rates (e.g., SUTA tax rate)
- Employee information (e.g., pay rate and withholding information)
Read on to learn about the tasks, time commitments, and costs involved with doing payroll manually and using software.
1. Manually do calculations
If you’re willing to read up on tax laws and do your own calculations, you might be interested in learning how to do your own payroll.
Doing payroll by hand is the least expensive payroll option. You don’t have to pay a professional or purchase a program.
When you manually run payroll, you have full control over your payroll. You know when and how your payroll is completed. But, doing payroll yourself likely means you don’t have someone to check your calculations. There is an increased chance of errors, which are often followed by penalties.
Doing payroll by hand also takes time. You have to do all the calculations, distribute wages, and file taxes. You could spend a lot of time working on payroll instead of working on your business.
How to manually do calculations
Want to handle payroll solo, without any software? Take a look at the steps you have to follow for manual payroll:
- Track time
- Use an attendance management method to track employee time. Or, you could have employees track their own time. Then, you can approve it.
- Calculate payroll
- At the end of each pay period, use employee time cards and their rates of pay to calculate wages.
- Include all types of compensation, including any tips and overtime for the pay period.
- Subtract deductions
- Begin by subtracting pre-tax deductions.
- Next, deduct employment taxes.
- Finally, withhold post-tax deductions.
- Pay employees
- Distribute take-home pay to employees using your designated method (e.g., direct deposit).
- File and deposit taxes
- File and remit employment taxes according to your deposit schedule and form due dates.
2. Purchase payroll software
Payroll software is a great middle-ground option for doing your own payroll. Online payroll software is relatively inexpensive. Not to mention, the software does all calculations for you, so you don’t have to worry about mathematical errors.
With payroll software, you remain in control while processing payroll. You get to be in charge, and you know exactly when payroll is done.
Depending on the solution you go with, there might be a learning curve for you to get the hang of the software. But, you can contact customer support for help.
Payroll software requires a small time commitment. The time commitment is less than what you would spend on manual calculations. And if you purchase a tax filing service, the software takes care of all tax obligations for you. You won’t have to worry about withholding, filing, and remitting taxes—saving you even more time.
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How to use payroll software
If you’re interested in learning how to do payroll yourself but also want a streamlined process, consider software. Here are the steps to use payroll software:
- Purchase reliable payroll software
- Enter your business and employee information
- Have employees track their time worked each pay period
- Run payroll and distribute wages
- The software handles calculations for you.
- File and remit taxes
- If you use full-service payroll software, you can skip this step because the software company will do this for you.
Can you do your own payroll?
You now know how to run your own payroll. If you’re still not sold on being able to handle it on your own, you might opt to outsource payroll to a professional employer organization (PEO) or accountant.
Accountants and PEOs are trained professionals who can run payroll for you. After you hand over employee information and time cards, your payroll professional will handle the rest.
Keep in mind that expertise comes with a cost. Outsourcing payroll is the most expensive out of all your payroll processing options.
This article has been updated from its original publication date of September 7, 2016.This is not intended as legal advice; for more information, please click here.