Why you should NOT do your own payroll

Why you should NOT do your own payroll

Bookkeeping, payroll, paying bills, what drudgery. Many jewelers think anything done by themselves is less expensive than hiring it out. Many folks I know use QuickBooks and do their own payroll. If setup right, this can be pretty darn easy. But it’s not entering payroll that I’m concerned about but the Federal Forms, making payroll tax deposits and year end W-2’s.

If you’re cash rich you’re probably paying your taxes on time but if you’re cash poor and you don’t pay the government on time they’ll nail you on penalties and interest. In 1986 I got into trouble this way and changed in 1987 how we did our payroll. We used a Payroll Leasing Service.

There are several ways of doing your payroll and I have given some thoughts on them:

A. Manually figure it from the booklet the government sends you.
Too time consuming and if you make a mistake there are penalties. Figuring taxes, deduction and hand writing checks is laborious. Then you have to type up your own W-2’s in January. If you have to do payroll by hand at least use a computer program like QuickBooks. It easily takes 2.5 times longer to use this booklet than using a $300 program off the shelf to do the whole ball of wax. Doing payroll this way is so 1980’s!

B. Using a built in program with your accounting system, i.e. QuickBooks or Peachtree.
Both of these programs can calculate payroll monies. You simply click on “Pay Employees” and on the list you type in the number of total hours worked. The program distinguishes between regular hours and overtime, will make deductions and give a monthly report of how much to pay to each branch of the government whom you owe the money and will print the forms.

If you have deductions for insurance, you’ll have to figure when to pay those on your own, but the program will deduct it for you. QuickBooks offer 3 types of payroll and I’m sure Peachtree does as well.

a. Standard Payroll: You input the numbers; QuickBooks figures the taxes and computes them for you. You print the checks; you pay the government. You print the W-2’s on the computer, they are already figured out. Just a click of a button. You can print only Federal Forms. Workers comp is not tracked for you in QuickBooks standard.
b. Enhanced Payroll: Everything in Standard is there; the advantage is enhanced prints forms for State taxes. 30 days of support, which standard does not have. If you have state income taxes, this is the way to go.
c. Assisted Payroll: Everything above plus Intuit prints and mails all tax forms for you. They also make the tax deposits for your company by taking the tax money out of your bank account. They will print the paychecks and deliver them to you; you’ll have to now enter them into QuickBooks. That’s not the best way to do payroll and use a computer. Ongoing support, direct deposit included for employees, access to an HR specialist to help you in your store.

These services start at $17; $25 and $59 a month and go up depending 	upon the number of employees.

C. Using your CPA or accounting firm and let them figure the monies after you tell them how many hours every worked.
Many folks just call or fax their accountant and they do all of the work. Many do this with manually written checks. It can be expensive and can be a bargain. I know one small store that the accountant does all payroll and the monthly financials statements for $200. But you still have to enter the checks manually into your checkbook.

D. Using an outside payroll service like ADP or PayChex.
This is the way I would suggest and I would let these people print the checks on their bank account (they FedEx them to you). They then debit your checking account for all monies including all taxes and send the taxes each week along their way. They send in your 941’s (you never sign another form-ever) and deliver in January your W-2’s. All you have to do is enter the checks into QuickBooks or your check books.

Better yet, by letting them print the checks on their account, there’s no reason to enter every check. They give you a record binder with all history of each employee and check. My suggestion is to enter ONE check into your check book for the whole week’s payroll and divide it by department.

If you have 9 employees in 3 departments:
Total of 2 Jewelers Gross Pay: $3655.00
Total of 3 Sales Staff Pay: $3285.00
Owner’s Pay: $6050.00
Office Staff (1) $650.00
Our Matching Taxes:

So you enter one check but divide it up on 4 lines. Simple.

Another advantage of this payroll service is you can have benefit packages. Even a one person corporation can have a 401K plan and sock away over $30,000 a year and these companies have funds to put your money into. In addition they have cafeteria plans where you can put away tax free dollars for childcare, eyeglasses and other things not covered by insurance. I’m told that ADP and PayChex does offer insurance through another section of their company.

You can enter payroll by phone, fax or over the internet and employees can manage their own benefit package over the internet.

E. Using a Payroll Leasing Service i.e. Admin A Staff
This is what I used in my store. It’s a combination of what PayChex and ADP does but enhanced. Think of Employee Leasing like a temp service. All employees are “technically” on their payroll and they hire you, the owner, for $1 a year or so to manage them. Like the above service you do the payroll with them and they pay the employees on their checking account. Again ease of use. But because everyone “technically” works for the leasing company you can get great deals on health insurance being all employees are now a member of a 1000 plus employee company.

When I changed our company over to an employee leasing, besides the time savings; the tax liability problem being taken off of my shoulders, we saved over $1000 a month on our health insurance premiums! Yes we had to pay for the service but the net result was a savings.

Think how much a better buyer you could be in you had a 1000 employee company.

The leader in this field is Administaff, but there are others. They do it all and release you from the drudgery of payroll and can help you with Human Resource materials and handbooks.

Costs vary on all of these; some require at least 5 employees. As a consulting company with just two of us, I use PayChex and have a 401K plan and have bought my insurance separately through Blue Cross/Blue Shield.

You’ll make no money being involved doing payroll. Pawn all of it off onto someone else so you can concentrate on selling and marketing.

Resources for some of these companies:

QuickBooks Payroll
http://www.payroll.com

ADP Payroll Services
http://www.adp.com

PAYCHEX Payroll Services
http://www.paychex.com

Administaff
http://www.administaff.com

Start the New Year off right and get rid of the drudgery and concentrate on selling.

David Geller

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… it’s not entering payroll that I’m concerned about but the Federal Forms, making payroll tax deposits and year end W-2’s.

It’s just a matter of getting into the habit of doing it. Start with a calendar to identify your pay dates as well as deadline dates for all the reporting.

No matter when your fiscal year begins, payroll is kept on a January to December calendar. Mark the pay dates of your future payrolls for the year on your calendar.

If you pay weekly, then you must have exactly 52 pay dates in your year, and be sure you have exactly 13 pay dates in each quarter. These dates play an important role in how your payroll tax liability is reported. There will come a day when you will be glad that you took time to mark these dates on your calendar. An example would be if you mistakenly only report 12 weeks of payroll in a quarter instead of 13. It is easy to do, and incredibly annoying to correct because it has an effect on numerous reports.

Tax deposits are easier than they have ever been because you do it over the internet.

If you’re cash rich you’re probably paying your taxes on time but if you’re cash poor and you don’t pay the government on time they’ll nail you on penalties and interest. In 1986 I got into trouble this way and changed in 1987 how we did our payroll. We used a Payroll Leasing Service.

The first and most important thing to know about payroll is the employer is only a custodian of payroll tax funds, which belong to the government immediately when the employee earns his pay. You must pay on time because the money does not belong to you, you are just holding it. You must have this cash on hand. This is not the same kind of situation as you have with creditors and it’s not the same situation you have when paying your income tax.

Your cash flow has nothing to do with it because as soon as payroll is earned, the associated taxes are not your money. Penalties and interest are the tools they use to make you understand the government always gets paid first, no exceptions, non-negotiable. They will shut down your business if you do not handle payroll tax funds properly.

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I think it’s important to do a cost analysis on outsourcing your payroll. The group health insurance savings is remarkable, but it may not always make outsourcing payroll such a good deal. Health insurance costs goes up even for large groups when more employees or their family members are diagnosed with terminal illness.

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A. Manually figure it from the booklet the government sends you.
Too time consuming and if you make a mistake there are penalties. Figuring taxes, deduction and hand writing checks is laborious. Then you have to type up your own W-2’s in January. If you have to do payroll by hand at least use a computer program like QuickBooks. It easily takes 2.5 times longer to use this booklet than using a $300 program off the shelf to do the whole ball of wax. Doing payroll this way is so 1980’s!

If you only have a couple of employees, doing payroll manually is no problem.

Computer programs are only as good as the folks who create them and the folks who use them. Mistakes found in computer accounting take much more time to correct than mistakes made in manual bookkeeping. While you are finding and correcting the computer mistake, you may also need to be preparing the next payroll. In this situation, you might wish you were preparing payroll manually.

Just as in manual payroll preparation, you have to be sure your computer program is updated when information in the IRS “Circular E” booklet changes and when your state income tax changes, before doing the first payroll affected by those changes. Needless to say, your relationship with your software provider (as in paying him) might play a role in how timely you receive the update.

Sometimes all systems of preparing payroll can be a headache (including outsourcing it) when it comes to unusual situations such as government enforced garnishment or levy on an employee’s wages. Unpaid child support is an example. You cannot terminate an employee because his payroll deductions cause you headaches.