Starting a new business is a dream come true for countless numbers of entrepreneurs who do it every year. But with every new business comes a lot of responsibility. There are legal matters to think about along with sales and marketing, hiring employees and, of course, making payroll. Needless to say that business owners have a lot to think about just getting their new companies off the ground.
From a payroll standpoint, new business owners have to figure out how they will handle it. There is the issue of paying employees for starters. But there is more to it than that. Payroll also has to account for taxes, benefits, etc. The payroll department might even double as HR.
If you are starting a new business, here are the top five payroll questions you should be asking yourself:
1. Will I handle payroll in-house?
The first question is whether or not you will handle payroll in-house. Believe it or not, many small businesses that would benefit from outsourced payroll three or four years down the road also benefit from outsourcing right from the start. A business is never too small to outsource payroll. Whether or not it is practical for your business is something only you can decide. But take note that your decision will probably hinge on the remaining four questions in our list.
2. How is my business structured?
According to BenefitMall, a nationwide payroll and benefits administration firm, the way a company is structured affects payroll taxes. So ask yourself about your company’s structure. Do you operate as a sole proprietor or single-member LLC? If so, you’re subject to one set of tax rules. If you organized as an S or C corporation, you are subject to a different set of tax rules.
Note that sole proprietors generally don’t employ anyone other than their own immediate family members. There may be no need for outsourced payroll services if the business owner has no plans to expand beyond immediate family. Otherwise, outsourced payroll is still a good idea.
3. How are my employees classified?
Employee classification is another big issue. For tax purposes, the IRS recognizes only two types of workers: employees and independent contractors. The extent to which your new business utilizes both kinds of workers has an impact on how payroll is prepared. Utilizing mostly independent contractors presents special challenges that are best handled by a payroll professional.
4. Do I operate in multiple states?
New businesses located in border towns frequently find themselves doing business across state lines. This could be challenging if the business also employs people who work in the neighboring state. Different states have varying payroll laws that have to be followed regardless of where a business is physically located. So once again, payroll might be best left to a professional if your business is subject to any cross-border issues.
5. How much time do I have for payroll?
Last but not least is the time question. Do you really have time to put into payroll on a regular schedule? Do you have the time to worry about withholding, keeping track of tax information, and making sure payroll taxes are filed and paid on time? If you do, that’s great. Many new business owners don’t.
Outsourcing payroll might be the best decision for your new business. But it also might be something you don’t really need. There’s no way to know until you look into payroll services and what they offer. And like anything else related to your business, you won’t ever know if you don’t at least consider all of your options.