Nuts & Bolts of Running your Small Business: Payroll

By Jason Arsenault

You had an idea for a business; you pushed forward, and now you’re 100% committed. Running your own business can be very different than what you had imagined. It quickly turns into several different jobs. Once you own a business, you become responsible for everything. Hopefully, it becomes successful, and you will to need to hire an employee to help you expand. When this happens, that means you are going to have to figure out to how to do payroll. It isn’t as easy as just writing a check, because a lot is involved with payroll. These are the nuts and bolts of payroll.

All of us (except maybe a first-time worker) realize that we don’t get all wages earned in our check. Monies are withheld for state income taxes, federal income taxes, Social Security and Medicare. You might also have a retirement plan or employee benefits taken out of a paycheck. Deducting these from the employee’s paycheck is your responsibility, the employer. If you haven’t started keeping detailed records yet, now would be a great time to start.

First, you want to have your employee(s) fill out a Form W-4. Situations are always changing, and it is a good idea to have this formed filled out each year. This form is a roadmap that will help you figure out the amounts that you will need to withhold from each paycheck. Form W-4 is involved and is going to finish with the amount needed to be withheld from every paycheck. It is very important to take the time to fill this out correctly. An incorrect Form W-4 could result in having a surprise tax burden at the end of the year, or that you were giving away too much money during the year that could have been used towards expenses or savings.

Next, you will need to figure out how much New Mexico withholding will need to be taken out of each paycheck. You are going to use the number of allowances claimed on the Form W-4 and then use a table the State provides to figure out how much additional monies need to be withheld. You are going to need to decide how often your employee is going to receive a paycheck. Is this going to be weekly, bi-weekly, or monthly. Also, are you paying your employee an hourly wage or salary. If you hired an employee expecting

them to work 40 hours a week, but they only worked 30 hours, the amounts are going to change. As an employer, you don’t want to be spending extra monies that could be used to grow your business because you don’t have a strong understanding of how your payroll works.

Third, you are going to have FICA payroll taxes that need to be withheld from every paycheck. The amount for these taxes is an easy calculation: 15.3%. The employee is responsible for half of this amount and the employer the other half. However, it is the employer’s job to withhold the proper amount from the paycheck. FICA taxes are a combination of Social Security tax of 12.4% and Medicare tax of 2.9%. It depends on the size of your payroll on how often you make deposits for this withholding. The Gallup Journey magazine makes one deposit each month, but my employer makes a deposit each week. It is going to be a monthly deposit, a semi-weekly deposit, or done quarterly.

When you have figured out how much to withhold from your employee(s) paycheck, the fun part begins. It is your responsibility to report this information to the proper state and federal agencies. Most likely (depending on the size and timing of payroll) this is going to be done monthly. You will also need to do a quarterly return with the Internal Revenue Service. Not only are you reporting these amounts, but you are giving these agencies the monies that are to be withheld. Not staying current with your payroll taxes is a situation no business wants to put themselves in. Good record keeping is going to help you become a profitable business.

Payroll can be very overwhelming. When you started your business, you didn’t imagine the amount of time you would spend on the “other stuff.” You can find lots of payroll calculators to help you with the process if you want to become proficient at this. However, I imagine you think your time is more valuable growing relationships and your business than calculating withholding taxes and filing reports. Certified Public Accountants make record keeping and payroll their business. Services like payroll can be very affordable and providers make sure you are doing everything correctly. If figuring out payroll is not where you want to spend your valuable time, then get in touch with a payroll specialist. Visit my site online and get in touch.