How to Handle Payroll for Small Business Owners


Any business that has employees has to deal with payroll. It records the payments made to employees. The method of recording may vary based on the system in each company. A payroll involves the records of employees, the company’s payment plan, and a post-payment plan dealing with taxes and other logistics.

One of the most tedious and frustrating jobs for any business owner is dealing with payroll. However, it is a necessary task. If it isn’t performed well, it could lead to severe lapses in the company records. It could lower employee morale and cause the company to lose significant business deals.

A common question that often comes up is how to handle payroll for small businesses. There are many steps involved, and establishing an effective payroll system is a significant first step. It is best for business owners to seek professional help if they are having trouble handling the accounts.

Accounting System

Even small businesses often have employees. It is through their work that a company can thrive and grow. It also means the owners don’t have to handle all the tasks independently. A primary concern that often comes up is how to manage payroll for small businesses. The secret is to have a proper accounting system.

A payroll accountant ensures that all the financial needs of the employees and the company are met. Their primary role is calculating and processing salaries and ensuring employees receive their payments. They also deal with any updates to the business payroll, including adding details about new employees and removing employees who are no longer a part of the company from the system. Payroll accountants prepare internal and external tax reports; sometimes, they may also perform internal audits.

A payroll accounting system is a means of processing, filing, and tracking all the data concerning employee compensation. This data may include; money paid to the employee, the amounts withheld from a paycheck, taxes, and employee benefits. A qualified payroll accountant may operate the system for the best outcome.

A payroll system ought to be accurate and precise. It will maintain employee satisfaction and help the business record keeping and accountability. These records are vital when it comes to tax issues. While keeping the company’s records manually is possible, it is best to have cloud-based accounting software. The software makes it easier for the company to track how money goes into and out of business. It’s a sure way of keeping records for the long term, and the accounting team will be able to access documents from any location at any time.

Consulting Services

Another way a business can keep its financial records in check is through an IT consulting service. Many people may doubt the necessity of hiring an external service provider for a small company. However, it is a crucial decision that can help the business thrive. Whether the consulting agency will have to deal with the small accounting details or the high-level financial aspects, external help is crucial.

Many small business owners can independently handle financial record keeping and analysis. However, it becomes rather challenging to perform these tasks without the necessary expertise, which is why it is better to have professionals deal with the analysis of the financial state of the business.

IT consultants aren’t employees of the company but offer their services to find any issues with their current systems and help solve any problems they may encounter. They also aim to create a working and effective payroll system. Some of their responsibilities may include;

  • Automating the payroll system. It would mean the system would need scanning devices, automated time clocks, etc.
  • They would handle complex financial aspects such as ensuring the company complies with state laws on issues such as minimum wages, insurance, employee benefits, etc.
  • The consulting service would be keen on preparing reports on how the company has been doing, highlighting its strengths and weaknesses.
  • One area that is particularly cumbersome that IT consulting companies can assist with is taxes. They will take care of all the deductions from employees’ salaries due to the government.
  • They help with the preparations of payroll tax forms for the appropriate agencies.
  • They organize employee records such as time cards, salaries, and even tax forms making it easy to find their details.
  • They can also perform audits of the company’s financial records. This move ensures that the business has accurate records and complies with all the laws.

The significant amount of work that an IT consulting company handles saves small businesses valuable time. Their services may not be necessary daily but essential during a crisis or when specific tasks are beyond the current staff’s abilities.

Legal Representation

Every small business will require some form of legal representation or advice. There are many types of legal issues that a company may face that the owners or managers may not fully understand. It is best to seek the services of a business attorney to avoid getting into legal trouble. Their expertise will help the business run smoothly. Here are some of the issues with which a lawyer can help.

    1. Payroll Tax

Any company with employees, regardless of how few or many, has the legal responsibility to pay them. But another crucial aspect of payroll is taxes. Not paying taxes can get your business in serious trouble. The IRS has the authority to collect any taxes that are past due. Taxes also tend to pile up and grow in terms of interest. If you don’t get them under control in time, they could get out of hand, making it difficult to catch up.

Payroll taxes, in particular, can be notorious. Not paying these taxes can lead to the loss of the business. As a result, dealing with business tax audits, unpaid payroll taxes, and any other tax issues that the company may be dealing with is essential.

A business attorney comes in handy when dealing with these tax issues. They provide legal advice on handling the IRS and protecting your business. With the help of an attorney, you can learn to keep your finances flowing while opting for viable solutions for tax payments.

  1. Bankruptcy And Debt Negotiations

It can be challenging to get a small business up and running. A company with a sole proprietor can have difficulty bearing separate identities, especially regarding finances. If the business gets to a point where it is drowning in debt and struggling to stay afloat, then filing for bankruptcy may be the best option. Filing for bankruptcy can help wipe out all the business debts; however, it doesn’t work all the time. Tax claims, among other kinds of debts, may not be forgiven via bankruptcy.

Sole proprietors face a considerable disadvantage in cases of bankruptcy. They must provide personal and business financial records, meaning they’ll be a part of the filing. Although the process would mean that the owner’s personal and business debt will be cleared, it will also mean losing valuable assets, including the company and other personal valuables. The advantage, however, is that they will not lose everything, providing an opportunity for a fresh start. There are two types of bankruptcies, i.e., liquidation and reorganization.

Liquidation involves closing the business, and the assets are divided among the creditors. It usually works when the company cannot make the monthly debt payments. Any employees for whom the business owes wages are also considered creditors and therefore eligible for compensation.

The reorganization involves the restatement of assets and liabilities intending to extend the company’s life. It aims to allow the business to repay the debt in three to five years. During this period, the business may continue to operate.

A bankruptcy attorney helps businesses with the necessary paperwork to file for bankruptcy. These lawyers also help protect your assets from debt collectors, and they try to help free you from your financial responsibilities. Their advice will help the business understand the type of bankruptcy they are filing. A bankruptcy will assist with the debt negotiations and represent the business in court.

Financial Assistance

Financing a small business can be difficult. Business owners often pour their life’s savings into realizing their dream of a successful business, but it still isn’t enough. The next obvious solution may be to borrow from friends and family; however, this may not be enough to meet the needs. Alternatively, the business could seek out a bank loan. Unfortunately, many small businesses do not qualify for a bank loan for various reasons, and ultimately, the business owners are left with only one option, a hard money loan.

A hard money loan is a collateral-based loan placed with private investors, mortgage companies, and many other hard money lenders. Unlike bank loans, creditworthiness is not a determining factor for hard money loans. Instead, they depend on the collateral the business can offer the hard money lender. The terms of these loans may be more strict than a traditional one. They are typically short-term and are similar to bridge loans. Due to their risky nature and high-interest rates, hard money loans should only be an option in cases of emergencies.

Jumbo Loans

Another way to finance a small business is through jumbo loans. They are also known as jumbo mortgages. Many companies starting or wishing to expand cannot afford to purchase a property. Conventional loans are generally regulated by the Federal Housing Finance Agency (FHFA) for properties, and loan amounts usually do not exceed $647,200 in most regions. Therefore, businesses that need more than that amount would require a jumbo loan.

These loans bear a greater risk to the lenders than the borrowers since they aren’t guaranteed or securitized by Fannie Mae and Freddie Mac. As a result, the terms for these loans are generally more strict. They come with high-interest rates. There are generally two interest rates for jumbo loans, i.e., fixed and adjustable.

Lenders will consider the credit score and often require nothing less than a FICO score of 700, while others will insist on 720. Debit to income ratio also plays a vital role for businesses seeking a jumbo loan, which ensures that the company will not be overleveraged. It’s essential to have a significant amount of cash reserves. Lenders feel more confident when companies can keep up with their payments. Some lenders will insist on a cash reserve that can cater for a full year’s payment.


A business will face the threat of failing in one way or another, especially a business starting. One of the ways a company can manage the risks that it faces constantly is by seeking a business insurance agency. In many cases, it is a legal requirement for a business to have insurance. It also makes a company seem legitimate and safe to potential customers and investors.

There are many unforeseen and unexpected events that frequently occur. All it would take is a terrible accident, a natural disaster, or personal liability to bring a business to bankruptcy. However, a business insurance agency can work with business owners and managers to determine the best insurance policy for their company. Seeking the services of experienced insurance professionals has many benefits and may be a wise and economical choice.

There are many types of insurance that a business can consider. A major one is workers’ compensation insurance which has many benefits, including wage replacements and medical benefits. These covers cater to accidents that occur while at the workplace. Employees are usually more confident working for companies in their best interests. In addition, companies are required to have insurance for their workers. Businesses may incur some serious losses without them.

Even though payroll can be a pain, it is a crucial aspect of a business. A business should take the time to learn what the process generally entails. Invest in the recommended process software to make record keeping and access easier. Hiring a professional to help make the process smoother is also best. It is best to keep up with taxes to avoid legal trouble. Also, seek legal advice to run your business smoothly.