You’ve recently crossed the finish line for the calendar year. Does it mean it’s time to celebrate with your spiked eggnog recipes? Well before you do, we have one more tip to make that beverage taste even sweeter by knowing you’re set up for success in the year ahead.
As a business owner, this is a vital time for you close the books on your business finances and to smooth out any kinks in your payroll for this upcoming year. The end of Q4 and the start of Q1 is also the best time to switch or start using payroll software.
What happens with small business payroll as one quarter ends and another one starts?
As a business owner, you are required to submit a quarterly payroll report to the Internal Revenue Service (IRS). This means at the end of each quarter, it’s the time to add up all employee wages and taxes paid, as well as the amounts for any employment taxes.
While you are required to do this on a quarterly basis, the beginning of Q1 is a unique time where it’s easiest to switch payroll software. This time of the year is called “payroll year-end.” Would’ve never guessed the name right?
What are the common amounts on a quarterly payroll report?
Common amounts on quarterly payroll reports include wages, tips, federal income tax, Social Security and Medicare taxes. These are classified under employment taxes (payroll taxes) and employers withhold these amounts throughout the year.
*Note that for Social Security and Medicare taxes, employers are obligated to pay matching amounts to the withheld amounts from employee wages.
Employment taxes also include the Federal Unemployment (FUTA) Tax. Employers must report and pay FUTA tax separately from the other amounts mentioned above. In fact, FUTA is an employer-paid tax.
Most of these amounts can be found in the payroll register, a record of all payroll details for employees’ updated each pay period. These amounts are used to generate the quarterly 941 reports for the employer and annual W-2 and 1099 forms for the employees (and contractors) that are sent to the IRS and to employees by the last business day in January.
Why is Q1 (the close of one year and the start of another) the best time to switch or start using payroll software?
By switching at payroll year-end, it’s the one time of year where your year-to-date amounts are zero. This makes the setup process simple and easy.
When should I start planning to make a change to my payroll software?
You’ll need a short ramp-up period to set up and prepare your first payroll for the new year. We recommend targeting the period between mid-November and mid-December. But if you miss this window for any reason, don’t panic. You can still do this.
Can I change payroll software at any other time of the year?
The answer is a resounding yes! Of course, the best time is at payroll year-end as mentioned above. The second best time is right after each quarter. However, you can change payroll software at any time.
Why would a small business want or need to change payroll software?
Payroll processes have become more complicated than ever. Small businesses need ways to simplify their payroll processes while staying tax compliant.
While every business has its own unique needs, it’s more likely than not your business could save time and money by using payroll software.
Here are a few situations you might find yourself in when considering a switch or start with payroll software:
- Matching your payroll needs with the software features.
- Wagepoint’s featuresinclude direct deposit, automated tax payments, new hire reporting and an online portal for employees.
- You’re unhappy with a current payroll provider.
- There’s no cookie-cutter solution. For example, you’ll want to find software with a top-notch support team (like us 😉) if you value customer support highly.
- Changing to a tool recommended by an accountant or bookkeeper.
- Most accountants and bookkeepers have their arsenal of preferred tools — (like us).
Why do I need software to pay my employees?
Some small businesses choose to do their payroll in-house. In fact, 58% of these businesses spend three to ten hours on payroll per month. You might say that it’s time well spent. But how often are you focused on administrative tasks rather than revenue-generating activities?
In-house payroll isn’t just a matter of time but also money. Many small businesses make costly mistakes that impact the bottom line. Businesses that don’t calculate incomes and deductions properly can receive hefty penalties and fines. In fact, businesses that process payroll manually make twice as many mistakes as those that use payroll software.
The answer? Small businesses can save ample time and money by automating with payroll software. Fact alert: Automation reduces payroll processing costs by as much as 80%.
How do I know which payroll software is the right choice for my small business?
In the buffet of payroll options out there, how do you know which one is right for you? Here are some factors you should consider when choosing the right solution for your business:
Must have payroll functions:
- Direct deposit.
- Online employee portal.
- Automated tax payments andnew-hire reporting.
- Your company employees and contractors count.
- Whether you have a mix of hourly and salaried employees.
- If your payroll needs are simple or complex.
- Integrations with other tools (such as an accounting or time-tracking tool).
- Top-notch customer support.
- Reasonable, transparent pricing that includes year-end tax documents at no extra charge.
- A team of experts behind the tool that understands your needs.
Preparing to change payroll software:
Now that you’re ready to take the leap to either start using payroll software or make a switch, what’s next?
1. Collect your basic information.
You’ll have to gather your:
- IRS issued 147-C letter — Contains information like your legal business name, business address and your FEIN number).
- Your business banking information — Either a canceled check or business direct deposit form.
- Your state-issued ID account numbers — State withholding account number and/or state unemployment (SUTA or SUI) tax identification number (if applicable).
- Any issued IDs from local tax agencies.
- Your employees’ federal and state W-4s (W-9s for contractors) as well as your I-9s.
- A voided check or direct deposit information from all your employees or contractors.
People can be resistant to change. However, if you give your employees enough time to process the changes, your new-found payroll software will be well received. Give your employees a few weeks notice and you should find little to no friction.
If you’re changing payroll solutions, let your current provider know and follow any guidelines, such as a 30-day notice.
3. Compile any required reports and forms.
Last but not least, you will need to request the payroll register and your Form 941s from the current calendar year. Both will act as a record of all your key payroll transactions and filings during the setup process. If you’re starting your payroll run anytime outside of the first payroll of Q1, you’ll need to have accurate year-to-date amounts.
Why it’s so important to get your payroll set up the right way — right from the start.
Imagine for a second that a functional payroll process is like a well-constructed building. Think of dealing with your payroll and payroll taxes as the scaffolding, while entering in your business and employee information as the foundation. Your payroll “building” rests upon you entering accurate information.
Since your tax amounts and payroll tax reporting are calculated based on your rates entered, one inaccuracy can lead to a snowball of mistakes. Not to mention, the penalties and fees (2 – 10% of total payroll) from the IRS can follow close behind.
Look into add-ons and integrations as you get started with your new payroll software.
In today’s day and age, online software can share information with one another through the means of integration. As you search for the right payroll software, it’s important that you find one that plays well with others.
For example, if you’re using accounting software, like QuickBooks Online or Xero, our simple integration with these tools lets you download your payroll information via a journal entry. This makes sure that the numbers on your payroll can be easily added to your financial statements. Or if you’ve opted for tools, like TSheets and 7shifts, for time tracking, you can easily import approved hours into Wagepoint.
If you’re looking for help tracking time and attendance or paid time off, our Track for time and attendance and Luna for paid time off are tools that integrate seamlessly with Wagepoint. (Even better news, the first month of either of these tools is free. And you’re only charged for the employees who use the tools.)
Looking to add a little emotional intelligence? You can even connect Wagepoint to Slack to help everyone remember birthdays, holidays and work anniversaries—along with those all-important paydays.
The advice we share on our blog and in our webinars is intended to be informational. It does not replace the expertise of working with accredited business professionals.
Author: Joel Xu is a data and strategy-driven marketer that has fallen in love with helping businesses grow by any means necessary. He spends countless hours consuming blogs, podcasts, and other resources to discover new marketing opportunities.