Whether you choose to process payroll manually, use industry-leading bookkeeping software, or hire an accountant, streamlining the process and staying organized are critical to the success of your small business. We’ll walk you through the entire payroll process step by step using this payroll guide. Continue reading to learn about the various processing methods, or skip ahead to the section that applies to you. Here you will read about how to do payroll in QuickBooks online and on desktop and for more information like how to resolve data damage to QuickBooks and the need to upgrade to QuickBooks enterprise then click on these links.
Calculating tax withholding amounts, gross and net pay, and additional deductions is a difficult task that must be completed.
“Performing payroll manually entails several steps.” To begin, you must establish tax and registration information for your company. “This includes obtaining a federal identification number, or FEIN, establishing a payroll deposit schedule, and finally registering with both federal and state agencies to electronically submit payroll taxes,” Garcia explains.
Step 1: Collect your tax information
Before you can run payroll for the first time, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Your EIN is a one-of-a-kind number that identifies your company. You can get the application for free online, by mail, or by phone.
The government uses social security numbers to identify US citizens. An Employer Identification Number is the business equivalent (EIN). This ID number is required to open a bank account, obtain a business license, hire employees, run payroll, and file taxes.
Step 2: Ask employees to fill out an Employee Withholding Certificate
You will need to request pertinent tax information from your employees once you have received your EIN. You can gather all of the necessary information by having new hires fill out the following forms:
- If they are a traditional employee, they must complete Form W-4 on or before their first day.
- If they are an independent contractor or freelancer, they must complete Form W-9.
The information provided by your employees will assist you in determining the correct withholding amounts and sending out accurate W-4s and 1099-MISCs at the end of the year.
Step 3: Determine a payroll schedule
It is up to the business owner to decide on a payroll schedule, as long as they adhere to the guidelines mandated by the state and federal governments, relevant collective bargaining agreements, and union demands.
“The [payroll] schedule could be semi-weekly, monthly, or quarterly in some cases.” You must file and report your payroll at the end of each period, which can be quarterly or annual depending on the form,” Garcia explains.
Step 4: Calculate gross pay and withhold tax deductions
Gross pay is the number of hours worked by an employee during a given pay period multiplied by their hourly rate. Paper timesheets, punch clocks, and spreadsheets can all be used to collect the necessary data. Use automated software, such as QuickBooks Payroll and QuickBooks Time, to assist you with this.
To manually calculate payroll:
- Add up the total hours worked for each employee.
- Multiply that number by each employee’s hourly wage to determine gross pay.
- Account for any tips and overtime hours accrued by non-exempt employees.
Overtime regulations by district
To calculate overtime hours correctly, multiply each hour worked in a week in excess of 40 hours by at least 1.5x the employee’s regular hourly rate.
In addition, laws in Alaska, California, Nevada, Puerto Rico, and the Virgin Islands require you to pay overtime rates whenever an employee works more than 8 hours in a day.
Step 5: Calculate net pay and run payroll
After you’ve calculated your employee’s gross pay and withheld the necessary taxes, figure out how much they get to keep.
After you’ve determined each employee’s net pay, you can run payroll and deposit funds into their bank accounts or mail them a check. To save money, you can also make payments with convenient pay cards.