It is the legal obligation to set well designed payroll system in the company, no matter what is the size and how many workers are engaged in its day to day operation. It is the smart way through which an intelligent employer can easily fulfill the legal and tax related requirements and save its time and inconvenience that can arise when the business is charged with the fines or penalties. Therefore, payroll qualifications and complete knowledge are very necessary for accountants to manage all payroll work.
Here are some tips or the steps that should be followed while preparing a payroll system in a small to average business:
- In the very beginning, before setting up a payroll system and even commencing the business, an employer should apply and possess the Employer Identification Number that is must to carry for every existing business.
- It is also important to figure out the need of any local or state level identification that is required under the tax payment procedures.
- Here, at this point be clear about the type of employees- independent contractors or the employees as a rather different set of laws and taxation will be applied in different concerns. It will directly affect the income tax, payment of unemployment tax and Medicare and other social security taxes.
- Every company must have complete paperwork of his employees such as personal records, salary and terms of employment.
- An employer or the professional having payroll qualifications should never underestimate the terms and conditions of employee compensation plans. It should be detailed and contain all the monetary and non-monetary features of the employment such as working hours, overtime, leaves, health plan premium and pension plan contributions.
- This is the time to choose the most suitable payroll plan from the available options (hiring the outsource services or setting the in-house system by appointing a professional having payroll qualifications). Both systems have their own advantages and limitations, so one can use its own concern or follow the market trend in this matter. In each case, only the employer is the main and only responsible person to report and pay the payroll tax.
- Once the entire set up is arranged, the payroll system goes on with recording the day to day transaction in the journal or record book.
- At the end of every financial year, the employer has to submit the payroll statements to the payroll tax department or related authorities, the list of required documents can be obtained from the department itself.