Processing Payroll: How to Do Payroll for Your Tech Startup

Are you trying to figure out the best practices for processing payroll? Read this article to learn how to do payroll for your tech startup.

When you’re the owner of your own business, it falls upon your shoulders to do many arduous tasks that you may not have previously been exposed to in the corporate world.

One such task is managing payroll. Not only is this task hard to complete, but it’s also incredibly important. Messing up your employees’ pay is a great way to experience high employee turnover that will skyrocket recruiting costs and over time, kill your operations.

In this article, we’ll help save you from that unfortunate scenario by teaching you how to do payroll. We’ll give you a few of the basic principles of payroll processing so that you’re better equipped to pay your employees correctly and on time.

Gather Documentation

The first step to processing payroll is to gather documentation. In order to correctly process payroll for your employees, there are certain things that you will need to know about them.

Most of the information that you need to collect will come from the W-4 form. This form contains all of the information regarding how many withholdings the employee is claiming for tax purposes (we’ll discuss how this is relevant later).

Beyond that, you’ll also need to know what benefits the employee has enrolled in. Last but certainly not least, you’ll need their employment letter so that you have documentation regarding the salary or wage that they are supposed to be earning.

Choose Your Payroll Software

The next step is to choose the right payroll software. Thankfully, there are many different payroll software options on the market to help make this painful process a little bit easier.

When choosing payroll software, keep the following things in mind.

First and foremost, you want to think about ease of use. The user interface of the payroll software should be incredibly intuitive. Unless you are a very large business, there is no need for the interface to be very complicated.

If you’re a business owner, chances are that you’re very busy. The last thing that you want is to have to take the time to sit down and learn a payroll software’s ins and outs for hours before you can actually use it. Avoid this by choosing the most beginner-friendly option on the market.

Another important thing to keep in mind is functionality. You’ll want to know whether the software can process withholdings, automate payments, keep financial records, and the like. 

Finally, be sure to check out multiple different software options before settling on any specific one. You’ll typically be able to get custom quotes for your business if your company is large enough. Compare these quotes against functionality to ensure that you’re getting maximum bang for your buck.

Always Use Direct Deposit

Once you have the right payroll software ready to go, it’s time for you to decide how you are going to pay your employees.

Luckily for you, in the modern-day, this should be an easy decision: always use direct deposit.

There’s really no reason not to use direct deposit these days. It’s completely secure (far more so than mailing physical checks to your employees). It’s also trackable, so you’ll be able to keep good financial records of all employment-related transactions.

Last but not least, it will also typically be your employees’ preferred mode of payment. If you don’t pay them with direct deposit, then they may leave for another company that does leverage direct deposit platforms. 

Choose a Pay Period

The first step in actually executing payroll once you have the rest of this stuff setup is to choose a pay period. The pay period is the interval at which you regularly pay your employees.

The industry standard is biweekly. Every other Friday is colloquially known as payday. Although you technically could stretch this out, you probably don’t want to. Your employees would complain.

On the other hand, you also don’t want to shorten the interval too much. Paying your employees every week means that you double the number of times that you need to process payroll, which just results in an additional time suck.

Calculate Gross Earnings

Once you know your pay period, you can start calculating gross earnings for the employee every pay period. Gross earnings are calculated differently depending on the employee’s compensation structure.

If the employee is hourly, then simply multiply their hourly rate by the number of regular hours worked (hours less than or equal to forty hours in a week). Then, multiply their hourly rate by 1.5 to get the overtime pay rate and multiply that by the number of overtime hours worked (hours above forty in a week) to get overtime pay. Sum those two products together for gross earnings.

For salaried employees, divide their yearly salary by the number of pay periods in a year. Then add any commissions or bonuses earned. That is gross pay.

Deduct Taxes and Benefits

Once you have gross pay, you need to remove the costs of income taxes and benefits. This is where you’ll need to program the information from your employees’ documentation into the payroll system. The final sum is the net earnings that the employee should receive in their bank account for that pay period.

Create a Pay Stub

Last but not least, it’s time for you to create a pay stub. Use one of the many pay stub generator free options on the market to create your pay stub. Be sure to itemize the deductions from the pay stub so that your employees understand where their money is going.

Be sure to keep detailed financial records of these payments. This will ensure that you have documentation backing you up if a pay dispute with an employee ever arises.

How to Do Payroll for Your Business, Made Simple

There you have it. Equipped with this guide, you should be far better informed on to how to do payroll for your business. It isn’t always an easy task, but knowing these steps should make it a lot more straightforward.

Check out the rest of the website for more tech advice!

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