How to do payroll yourself? We want to help you learn! New Jerseyans are proud, independent, and hardworking. If you have decided to start running your own payroll, our hats are off to you. We’re happy to give you some tips to get you started on the path to payroll independence. This might seem strange coming from a payroll service provider, that’s fine with us! Just as we want to be in the driver’s seat for many aspects of our business, we understand that some business owners like to do the same for their business. We want to help, so here it goes.
Author’s Note: This is Not a “How-to” on Establishing a New Business
This article focuses on helping already operational businesses that have decided to switch from a payroll provider or software to doing it manually. Yes, there is some information that will be helpful to people opening new businesses. That said, this article is not a guide on how to open a business. This is likely a topic that Sharp will cover down the road, but that day is not today.
Learning About Payroll? Don’t Do it All At Once!
Take your time, be patient, and be diligent. Rome wasn’t built in a day, and making a big change to your business should be a smooth and gradual process. Rushing through learning what payroll is might put you in the drivers seat sooner rather than later, but it won’t help you in the long run. Managing and operating any system requires that the person in charge knows what to do when things are going well, but especially when something goes wrong!
The best way to avoid panic mode down the road is by doing some research ahead of time. Obviously, reading this article is part of that. Other things you can do to help your transition, ask colleagues, buy some payroll software and pay attention to what processes take place. This won’t clarify everything all at once, but it will put you on track to start asking the right questions
Create a Complete List of Everyone on Your Payroll
Make a spreadsheet that includes all the employees, businesses, and independent contractors that you pay in one way or another. Consider this your master list, this list will help you later refine who actually needs to be on your payroll.
Yes, this may seem like a very straightforward task, almost silly, but make sure you dig deep on this point:
- Do you employ certain people seasonally?
- Are some employees currently on medical or personal leave?
- Do some people “work” for you, but are technically classified as independent contractors?
- Do you pay some employees differently than others?
- Perhaps you compensate some people through a percentage of the profits, a flat rate, or some other terms?
- Is it possible that some people receiving payment for their work are actually junior partners?
It’s very easy to quickly look at the people that make your business run and assume there’s an A-B connection; that isn’t always the case. There are many distinctions between the people that make a business run, and keeping good records is more complex than business in the past. 150 years ago, I imagine there were probably three categories: workers, managers, and owners, period. It’s a bit different now!
Further, people throw the term payroll around a little too loosely. It often includes people that should be excluded, and visa versa.
Doing Payroll Yourself? Digitize Your Tax Situation!
New Jersey, many other states, and the federal government are encouraging, and in some cases, requiring that business owners make payments digitally. Yes, one more account, app, program, password, username, pin number, probably doesn’t make your heart sing, but digital payments are the new reality. It’s best to handle it ahead of time. We saved you a little time by finding the link to sign up, and of course, the link explaining the link. It’s the the State of New Jersey, after all, not exactly known for its brevity in business regulation!
Here is a portal to the many categories after you have made your account
Distribute and Collect W-4s From Employees
After determining who’s an employee, who’s an independent contractor, it’s best to make sure that all W-4s are up to date for employees. The W-4 doesn’t demand much time or thought, it simply asks employees how much tax they want withheld from their paychecks. Greater withholding increases the likelihood of a bigger tax return, lesser withholding increases the likelihood an employee could owe taxes come tax season.
Making a new spreadsheet with this information is a great idea. Yes, some employees will say “I filled that out already.” Asking them to give it another look and making sure it still represents their wishes is fine, and only takes a couple of minutes. They might even realize that they want a greater amount withheld and thank you for the update.
Further Forms to File: NJ-927 / NJ-927W, NJ-500
Depending on the type of business you run, how often you make payments to employees. You’ll have to file one or more of the forms listed in the heading. In one form or another, all these forms simply collect the money withheld from employees’ paychecks at regular intervals. What that interval is depends on the business, pay schedule, and some other factors. Truthfully, listing all the specifics would be tedious for both writer and reader, so I suggest checking out the links below. They have already neatly organized what types of business pay which forms for which reasons.
The state provided a relatively cohesive PDF that helps business owners understand how, when, and why to withhold taxes. Naturally, it also warns of the consequences for failing to follow the rules.
I recommend checking out this single webpage (also from the state) that delivers the information much more quickly.
NJ-W-3
The NJ-W-3 is a year-end summary of all taxes withheld, all wages paid, and attached W2s for all employees. The official title for it is “Gross Income Tax Reconciliation of Tax Withheld,” but that makes it sound more complicated than it is. Get more information about this form here. This link shows how simple the form actually is, but remember, the link provided shows an option to submit on paper, that is outdated. This is one of those that must be filed electronically.
Closing Out
Payroll isn’t the easiest thing to handle, but it’s doable, both for us as a company and for highly motivated individuals. More than that, sometimes it’s simply good to have more information about your business, and learning the payroll process will absolutely help with that. Many business owners utilize payroll companies or software, but still benefit from understanding how the payroll, withholding, and taxation processes more thoroughly. Having a better conception of how your business works, where the money’s going, and why? None of those things have ever been a bad thing. We encourage anyone that wants to learn and we’re happy to help wherever possible.