As a small business owner, if you hire employees to work under you, you will need to have a payroll. A payroll should consist of employee names and information, hours worked, wages, deductions, and all records of payment made to them for each pay period and tax year.
Businesses can manage their payroll process either manually, with software, or through outsourcing to a third party. Here are the things you need to know before deciding how your small business will manage payroll.
These topics will help you understand more about payroll and it’s role in small business management:
- How to Set Up Your Payroll
- How to Pay Your Employees
- How to Pay Your Employees When You Can’t Make Payroll
- Types of Payroll Frequencies
- Online Payroll Calculator
- Advantages of Using Payroll Software
- Important Payroll Deductions & Remittances
- How to Calculate Payroll
- Understanding Small Business Payroll Accounting
- How to Process Payroll
- How to Choose a Payroll Provider
How Does Payroll Work?
As a small business owner, you will be responsible for hiring new employees and adding them to the payroll. Once hired, you will need to collect their personal information to pay them for their work. The payroll provides you with a way to manage employees, the number of hours worked, and their pay.
Payroll regulations ensure that all employees are paid on a regular basis. Pay frequency will depend on your preference as the employer. Typically this happens on a weekly, bi-weekly, semi-monthly, or monthly basis.
The Canadian Payroll Association is a national organization that works with businesses and the government to regulate legislation and make payroll administration more efficient. The Association offers extensive resources for employers to help them run and manage their payroll lawfully and effectively. As a business owner, you can opt to become a member to take advantage of their services.
Setting Up the Payroll Process
Some corporations choose to outsource their payroll, but small businesses can cover this responsibility internally with the use of accounting software. There are various benefits and advantages to using payroll software to help your company keep accurate information and organized records.
You can easily run payroll when you choose to set up your online payroll account in Canada using the Canada Revenue Agency (CRA). To begin the process, you will need to register your business with the CRA to receive a business number for your organization. This unique nine-digit number will help identify your business to the government when filing taxes, including payroll taxes.
What are the Components of Payroll?
Payroll management covers multiple aspects of wage transactions to cover all government requirements and employee needs adequately. Four main components make up payroll in a company; these include:
- Gross income
- Employee benefits
- Employee insurance
- Payroll taxes
Gross Income
Gross income, or gross pay, is the total amount of money an employee has earned in a pay period before deductions or taxes are taken out.
Calculating gross income will depend on whether the employee is paid hourly or is a salaried worker. To find the gross income of hourly employees, all that is required is to multiply their hourly pay rate by the total number of regular hours worked. If the employee workers overtime, then the overtime hours worked must be multiplied by the overtime rate of pay. Then the two figures are added together to find the total gross wages per employee.
For salaried employees, the gross pay is a set amount every payroll period. Any bonuses given within a pay period must be added to hourly and salaried employees’ total gross income.
Employee Benefits
Employee benefits are part of an employee’s compensation package, which must be deducted from the payroll and differ from business to business. Depending on your business, you may or may not have employee benefits attached to the payroll. This decision is something you must take into consideration when hiring employees.
Offering benefits to your workers is one way of showing them you are invested in them, and not just their work. Offering a quality employee benefits package is one way of attracting and retaining employees for your business.
Employee Insurance
Canadian employers are required by law to withhold contributions to the Canadian Pension Plan (CPP) and Employment Insurance (EI) premiums for all employees aged 18 to 70. For employers located in Quebec, they must contribute to the Quebec Pension Plan (QPP), instead of the CPP.
Employee insurance is paid by both the employer and employee, as it funds the maternity and paternity leave, as well as sickness and compassionate care. Again, Quebec has its own program.
Payroll Taxes
Taxes are a mandatory form of deduction that must be taken out of a person’s gross income. Payroll tax is a separate form of taxation and differs from federal income tax. Each province has applicable payroll deductions, as shown on the CRA’s payroll deductions table.
The Canada Revenue Agency (CRA) mandates that all businesses must set up an account with them through the Business Registration Online (BRO) service to receive a Business Number. As an employer, you must set up this account before the first remittance due date, allowing you to pay the Canadian government’s payroll taxes.
A payroll calculator helps you calculate the gross pay, deductions, net pay, and taxes for each employee. These free online calculators will need you to enter applicable data each time you need to calculate wages and deductions. Payroll software allows for automatic calculations, saving all information for further processing.
Payroll and Employee Morale
Overall, if your small business employs workers, payroll should play a significant role in the smooth running of your company. Employee morale can be directly tied to payroll, as timely and consistent pay is an essential aspect of any job.
Payment errors, whether late or incorrect amounts, can cause tension between business owners and employees. Keeping on top of your payroll will help boost morale and ensure your workers continue to provide their best output. One of the best ways to accurately calculate and track payroll and wages is through accounting software.
Payroll Management System
Accounting software can provide business owners with extensive payroll features to ensure their employees are well looked after while keeping you organized. Payroll software will verify that all payment calculations are correct; accounting for hours worked and applicable deductions such as benefits, insurance, and taxes, for every employed person.
With the QuickBooks’ payroll function, your business can easily track employees’ work hours, set up payment schedules, and pay your workers through free direct deposits. Try it free today!