Do It Yourself Payroll
Do It Yourself Payroll, luckily, today’s small business owners have more options, including outsourcing to a payroll provider, running payroll software in-house (or doing payroll online), or using a spreadsheet program like Excel to calculate payroll.
If you don’t have enough employees for outsourcing payroll and aren’t interested in paying for software, Do It Yourself Payroll using an Excel payroll spreadsheet isn’t hard. Plus, the only cost is the amount you pay for your spreadsheet software, like Microsoft Office Suite.
There are reasons to skip doing payroll yourself, especially potential inaccuracies. But if you only have a handful of employees and want to give by-hand Excel payroll a shot, we’re here for you.
Gather your employees’ tax information.
If you are going down the Do It Yourself Payroll route, start with collecting employee data as you hire them. You need to have them fill out a W-4 form, otherwise known as an Employee’s Withholding Allowance Certificate.
As the employer, you’re responsible for withholding the right amount in taxes from your employees’ gross pay. A W-4 gives you important employee tax information so you can do just that:
- Whether the employee is married, single, or married but filing at the higher single rate
- Whether the employee has any tax allowances that exempt them from certain taxes
- Whether the employee wants you to withhold extra money to help ensure they won’t owe money in taxes at the end of the year
Heads up, if an employee gets married or divorced, has a child, or acquires a dependent, they need to submit a new W-4 to update their tax withholding status. As an employer, you’re responsible for updating tax information as soon as an employee gets you their new W-4.
Employees also need to submit I-9 forms that verify they can work in the United States. And you, the employer, need to report all new hires to your state’s new hire bureau. If you plan to use direct deposit, you’ll need a routing number or canceled check from the employee to connect with their bank.
Run the numbers
Once you’ve collected all the information, you’re ready to process payroll. Open an Excel spreadsheet and get to work logging the data.
Start with an employee’s time worked. For salaried workers, this number likely won’t change from pay period to pay period. For hourly workers, the number will vary slightly based on exactly how much time the employee clocked during the period.
You’ll also want to calculate overtime and holiday pay, if applicable, plus sick leave and vacation days. Multiply the employee’s wage by their salaried hours or their exact hours and minutes worked, and voila: you have the gross pay.
Do It Yourself Payroll and calculating federal and state taxes is the hardest part. This number and percentage will vary based on the information you gathered from your employee’s W-4 form. You can use the IRS’s (Internal Revenue Service’s) withholding calculator to determine what to deduct from the gross wage and hold in trust for the government.
Along with state and federal income tax deductions, you’ll need to deduct these common withholdings from your employees’ gross pay:
- FICA taxes, or Medicare and Social Security taxes (also known as payroll taxes or employment taxes)
- Court-ordered wage garnishments for a child or spousal support
- Premiums for your company’s medical, dental, and vision plans
- Voluntary donations to charitable organizations
- Retirement fund contributions
Don’t forget about your taxes either. Employers are responsible for paying FUTA taxes, or unemployment taxes. These taxes don’t come out of your employees’ paychecks; instead, they’re a percentage you pay based on how many employees you have and how much they make.
If you’re using an Excel spreadsheet for payroll, make sure to check, double-check, and triple-check your numbers. If you don’t pay your employees the right amount, you’ll be out more than just some unhappy workers—you could also be in hot water with the IRS and your state and local governments.
Submit documents and prepare payroll taxes.
Once you’ve deducted income, Medicare, and Social Security taxes from your employees’ paychecks and figured out what you owe in FUTA taxes, you’re responsible for making tax deposits to the IRS. You might do this weekly, bi-monthly, monthly, or quarterly—the timing depends on your business’s size and profits.
Each January, you’ll prepare W-2 forms, or Wage and Tax Statements, for each employee, including your 1099 (or freelance) employees. W-2s aren’t the only tax forms you’re responsible for, though. You also need to regularly submit these forms directly to the IRS:
- Form 940, which you use to report federal unemployment tax payments (FUTA taxes)
- Form 941, which you use to report Social Security and Medicare tax deductions (FICA taxes)
- Form W-3, which is a transmittal, or summary, form that you submit to the federal government along with all your employee W-2 forms
As a Do It Yourself Payroll processor, you must create a tax deadline calendar to stay on top of these forms and submissions. If you miss a date, you’ll be subject to financial penalties, fines, and interest payments—none of which are a treat for your bottom line. As an employer, calculating taxes correctly, submitting them on time, and preparing the right forms must top your to-do list every month, not just during tax season.
Do I need payroll software to do my payroll?
If you’re perfectly comfortable with Excel and just want to follow the steps we listed here, then no, you don’t need payroll software to do your payroll. But even if you have only one other employee or you’re a freelancer working for yourself, payroll software can dramatically simplify your life.
Even if you’re not overly worried about miscalculating a pay stub or withholding the wrong amount, payroll software can automatically generate all the tax forms you need, on time. Honestly, almost any price is worth being free from tax stress—but you can download some payroll software for free, including Wave. Even brands like QuickBooks, FreshBooks, and Xero.
Outsource payroll to you Accountant
I do not recommend Do It Yourself Payroll. Payroll is complicated, no matter who handles it. That’s why you need to partner with our Accountants in Miami. Small businesses that pay employees must take into account various state and federal requirements and ensure that all of the proverbials I’s are dotted and t’s are crossed. That’s where the guidance of our accounting firm comes in. For small businesses, taxes occur more than once a year, and the Internal Revenue Service provides a tax calendar – with requirements for each month – that small business owners must observe. This is in addition to all tax requirements at the state level. Failing to complete the required information can result in fines; in fact, almost half of all small businesses pay upwards of $1,000 each year in fines for payroll inaccuracies according to a study conducted by our Miami Accounting Firm.