How Do You Process Payroll?

I'm gonna walk you through the steps you need to follow. Today, I'm gonna talk about how to do payroll, what some of the options are, what's involved with each option, and why you need a consistent method for doing it. 

Okay, let's get started.

Ways you can do payroll

There are three ways you can do payroll. One, you can do it yourself manually. Two, you can use the software. And three, you can hire a professional accountant or outsource payroll service. Keep in mind that whatever method you choose, you should be consistent to save you time, avoid headaches, and stay tax compliant.

Each payroll method has its pros and cons. Let's start with doing it manually. That gives you direct oversight of your timesheets and calculations, but it's time-consuming, and there's a good chance you can make a mistake in the process. The second is to use payroll software. That could be a great time-saver, but you need to make sure it's a reputable product that will give you what you need. And while hiring a professional accountant or an outsourced payroll service is the easiest method, it could be the most expensive.

Now let's go a little bit deeper into what each payroll method is and what it entails. Doing payroll yourself manually typically involves several steps. 

  1. First, you need to establish tax and registration information for your business. This includes getting your federal employee identification number, or FEIN, then establishing a payroll deposit schedule, and finally registering with both federal and state agencies to submit those payroll taxes electronically. Specifically, with applicable state and local agencies, you must obtain your state's version of the employer account number and the unemployment tax rate for your business, which can vary based on your industry, specific state, and your history as an employer.

  2. The next step is to have your employees fill out a W-4 form, so you have the correct federal tax income information and withholding of the payment. These forms may need to be updated manually if your employees' circumstances change. Also, employees need to fill out an I-9 form to prove they're eligible to work in the US. After that, you're gonna choose your payroll schedule, whether it's bi-weekly, bi-monthly, or monthly.

Now, for each payroll schedule or each payroll period, collect timesheet data for your hourly employees and calculate the payroll. Make sure that you have the correct withholding taxes deducted from those paychecks. After you issued your payroll checks, make sure to remit payroll taxes withheld and accrued to both IRS and state and local agencies.

The frequency of those payments is dictated by your total payroll liability amount. Make sure to check with the IRS and your state for those. In some cases, the tax payment schedule could be semi-weekly monthly, or quarterly. Then, at the end of each period, you must file and report your payroll, which happens to be in both quarterly and annual intervals, depending on the form.

You will also be responsible for giving your employees a W-2 form at the end of the year. And finally, make sure you have a consistent system for adding new employees and contractors to your accounting system, to keep your files organized. Specifically, with subcontractors, which are different than employees, you must have them fill out a W-9 form, so you can have all the information ready for filing their 1099 forms.

More about that in a different video from the same series. All the steps from the manual payroll workflow could be automated when you use payroll software.

Some Examples

For example, when you use QuickBooks Payroll, this is what your workflow looks like after you have loaded all of the employee and tax-related information into it. The first thing you're gonna do is you're gonna approve the timesheets from your hourly employees, which were created by them using their online access to their timesheets. Or maybe it was imported from a cloud-based time tracking system, such as QuickBooks Time.

Second, you're gonna generate payroll checks with one click based on that timesheet data. And you're gonna print those paychecks with the pay stubs, or even process payroll via direct deposit. Most payroll software is set up to automatically withhold and submit those taxes when the paychecks are created, and eventually electronically submit the payments timely and file the forms when they're due.

This is one of the biggest benefits when you use QuickBooks Payroll. Payroll software that integrates with your accounting system, typically, is the best of both worlds, giving you complete control over the process and the ability to automate some or most of the compliance components. Okay, this brings me to the last option, which is hiring a professional accountant or outsourced payroll service. Again, this is the easiest method, but the most costly, as, essentially, you're delegating most or all the responsibilities to someone else.

Usually, working with a local accountant will give you more flexibility and access to advice, but you will need to make sure that your accountant has all the necessary information on time. On an equal footing, hiring an outsourced payroll service will usually take a lot of the responsibilities off your plate, but it's not as flexible.

For example, you might need to have all your payroll information ready two or three days before running payroll to give that outsourced service enough time to process those paychecks. It's also possible to use both payroll software and an accounting professional advising you along the way, which provides some extra assurance and support without the full expense of outsourcing your entire payroll process.

This is especially true when you use QuickBooks for your accounting, with QuickBooks Payroll, alongside a Bookkeeping professional that is also a certified QuickBooks pro advisor. This is the winning combination.

We are providing professional payroll services along with Virtual Bookkeeping services for your business, we are certified with QuickBooks and have been working in this field for more than a decade.