It is the small business that suffer the most when in comes to payroll calculation and management of all the employees. Due to an insufficient number of employees working for them, small business often face a management crisis. To cope with this problem, you can either use a paid or a free payroll software. This is an important skill to learn because there are lots of taxes that need to be calculated, deducted and send to the relevant government agencies, and failing to do so can result in penalties from the IRS.
Since this is such an important skill to master, you should read this guide from start to the finish to have aa good idea on how to properly use a payroll software. Remember that the names of certain things might be a bit different in your preferred software, but the main functions are the same in all the payroll softwares.
Running One Employee At A Time
Many payroll softwares allow you to keep using their services for free under a certain threshold. For example, most of the payroll softwares would allow you to process the payroll of one employee at a time when you’re using the free version and haven’t yet signed up for the pro version. This main drawback of these free softwares is that you’ll have to enter slot of things manually, like their tax withholding information, typing in their allowances and some more details.
After you’re done manually typing in the required details, the free software will then Grand you with the following details.
- Federal income tax withholding
- Medicare tax
- Social security tax
- State income tax
Keep The Additional Taxes In Mind
These are some (not all) of the total payroll taxes that your employees might also have to pay.
- Workers compensation insurance
- Employer social security tax
- Federal unemployment tax
- State unemployment tax
Know More About SUTA and FUTA taxes
SUTA and FUTA taxes are changed by every business registered and running in the country. These are federal and state unemployment taxes that you are required to pay, but there are some basic differences between these two.
For example, the SUTA (state unemployment tax) isn’t a fix number, rather it is a specific tax assigned to every individual business. You can get your SUTA tax for the year through the mail, or you can also find it on the state tax website. Here are the factors that might influence your SUTA tax.
- The age of your business
- Unemployment benefits received by any of your employees in the past
The federal unemployment tax (FUTA) is flat 6% for every business running in the country (on the first $7,000 earned by an employee working for your business). This tax, however, is much less (0.6%) for the business that qualify for a FUTA reduction.
Medicare And Social Security
Learning about the social security and Medicare taxes is a simple process. You have to cut a certain amount from your employees, add the same amount by yourself, and submit to the relevant authority. So, both you and your employees pay the equal amount of taxes in Medicare and social security domain.
For example, if the social security has 6% tax rate, this would means that the employer would deduct 6% from the employee, and double it by adding the same amount by themselves. So, the total tax rate would be 12% per employee for the business. Additionally, social security tax has a wage base limit of up to $118,500, while Medicare doesn’t have a wage base limit.
Workers Compensation Insurance
The law requires every business to cover their employees with appropriate worker’s compensation insurance. You’ll need to avail this insurance to stay compliant with the business law. This insurance will help cover the damages to any worker that suffered an injury insure the premises of your business facility, and get injured doing any type of work for you. This is beneficial both for you and your employees, since his damages would easily be covered with no additional costs to you or your business.
Most of the States require you to buy a workers compensation insurance even if your business online has one employee. However, you can shop around and find the best state backed or private insurance plan whichever suits you the best. You can check more about workers compensation insurance and its requirements from the website of NFIB.
The Dangers In Running The Payroll Manually
When you’re calculating payrolls, your best bet is using a North Carolina Payroll Calculator equipped with all the tools you’ll ever need. These softwares can fully automate the consideration and calculation of the taxes we just mentioned and many more without you even knowing about them. So, you won’t be required to have an extensive knowledge of the taxes to use a payroll software in the right way.
On the other hand, a lot of human errors can make the process of manually calculating the payrolls inefficient and time consuming. Additionally, you might face a penalty by the IRS if you miscalculate the taxes.