13 Jan 20 Audra Walter
What is a payroll system and how can it help you and your business stay organized and compliant? Learn all about payroll systems here.
Continuing with our series on bookkeeping services, in this post we’re going to introduce and discuss the topic of payroll systems. When you run a business, there are many, many tasks you have to perform in order to keep your business functioning smoothly. Bookkeepers can help you perform certain of these tasks, such as balance sheet creation, income statement creation, bank reconciliation, and so forth. Another task which bookkeepers can assist with is maintaining your payroll system. As we will show, if your business has any employees, your payroll system is an essential part of your business. In fact, your payroll system can be described as the “central nervous system” of your whole business. Your payroll system focuses on keeping track of employee hours, employee compensation, withholding taxes, taking deductions, and delivering taxes to the IRS, state governments (where applicable) and other governmental agencies.
In this post, we will go over the basics of payroll systems and highlight the importance of payroll system for your business. This is only an overview, so it’s possible you may still have questions about payroll systems after reading this brief summary. If you have questions, don’t hesitate to contact the tax professionals and bookkeeping specialists at Boxelder Consulting. At Boxelder Consulting, we have a team of professionals lined up and ready to answer your questions and give effective counsel. Call us today by dialing 303-317-6111.
Payroll Systems Revolve Around Employee Compensation and Taxes
Simply put, your payroll system involves everything related to paying your employees and delivering the correct amount of taxes to the government. This means that your payroll system involves keeping track of the hours worked by your employees, paying them the correct amount of compensation, withholding the correct amount of taxes, taking deductions when applicable, sending out paychecks and then delivering the correct amount of taxes to the IRS and other governmental entities (such as state tax agencies). When you hire your employees, you will give them a specific form which allows your payroll system to withhold the correct amount of taxes – Form W-4. This form also collects certain personal information which you will need to hold within your payroll system. If you hire a bookkeeper to assist with your payroll system, your bookkeeper will be in charge of gathering all the information necessary to make and keep your payroll system functional.
Business Owners Match and Pay Certain Employment Taxes
Withholding taxes and transferring taxes to the IRS and other governmental agencies is one of the chief functions of the payroll systems. As a business owner, you will not only need to withhold certain taxes, but also match certain taxes. Moreover, you will need to pay other taxes which relate specifically to your employees. In our tax system, business owners need to account for the these main withholdings when they deal with employee compensation:
Federal income taxes
State, local, and city income taxes
Social security tax
When a business owner withholds these funds, that business owner becomes the “trustee” for those funds until they are transmitted to their proper destinations. In addition to withholding these taxes, employers are also required to match taxes, which means that they have to contribute an equal percentage. This is the case with both social security tax and Medicare tax. On top of this, employers also have to pay federal and state unemployment taxes. These are paid entirely by business owners, and so employee compensation is unaffected by these contributions.
Functional Payroll Systems are Essential for Your Business
At the close of each year, business owners will sum up all of the compensation, withholdings, deductions and other information contained in the payroll system in a W-2 for employees and 1099 for independent contractors. These forms have to then be sent to the IRS and Social Security Administration. Keeping a functional payroll system is essential for any business. As an owner, you need to make certain that you are paying your employees the correct amount and transferring all necessary funds to the right governmental agencies. Remember, until the funds are delivered, you are considered the custodian for these funds, which means that you could suffer negative consequences if things are filed improperly. Keeping track of all of this isn’t an easy task, which is exactly why you need to seriously consider hiring a qualified bookkeeper.
Contact Boxelder Consulting if You Have Questions
Again, this is only a summary. If you have questions about payroll systems, or you’d like to enlist a bookkeeper to help create and maintain your payroll system, reach out to Boxelder Consulting today. We can help you implement and maintain an effective payroll system which keeps your business running smoothly. Get in touch with us today by visiting our website or calling 303-317-6111.