If you are a brand new, first-time business owner, then paying your employees properly can be quite terrifying. Not only do you need to manage a lot of specific details that you could easily get wrong if you are not careful, but you are also having to follow certain state laws that can make things harder.
There is nothing wrong with taking the time to learn how paying your employees would work, but when payday is approaching, you only have so much time to spare. What does the process of paying your employees actually look like, and what does it involve?
The Payroll
The payroll is generally a collective name for everything related to paying employees. As long as you have registered as an employer in all relevant ways, then you will officially be able to pay employees to work for you – either salaried or on an hourly wage.
This entire payroll system is an internal thing that you will want to develop within the company since it acts as both your payment option and a major source of finance records. These records are vital for a huge range of different reasons, and keeping them is often a legal requirement of running a business.
Most businesses expand and improve their payroll over time, starting with something that works for their small amount of initial employees. Even if you are managing all of the payroll information yourself, to begin with, you could eventually grow it into a full accounting department for your company.
Pay Stubs
A pay stub is the core of how you handle your payments. Each pay stub acts as physical or digital proof that an employee was paid, and many states require you to present each employee with their pay stub directly. On top of that, pay stubs also have to include specific sets of information.
A typical pay stub would be created with details such as the employee’s name and address, company information, the number of hours the employee has worked (if wage-based), their pension and tax contributions, and their gross and net income. How the stubs are laid out depends on the company.
While you can make pay stubs by hand, it often becomes easier to create a pay stub for each employee using online generators. This makes large amounts of pay stubs very easy to create, something that can help a company without a dedicated accounting or finance team.
However you create pay stubs, they are a major part of how the payments work and act as a core record of your internal business operations. They can be digital or physical, but it is a good idea to keep backups of both in case something goes wrong and you lose the original files.
Salaries and Wages
Everybody knows the basic difference between a salary and a wage – a salary is a set amount paid on a set date (usually monthly), while a wage is paid based on how many hours an employee has worked since their last payday. Both are valid employment types but also require different pay stubs.
Salaried Employees
A salaried employee is paid a set amount for every ‘period’ of work, meaning that they will generally always receive the same amount of money each month. In theory, this makes it easier to create a pay stub for a salaried employee each month since they use almost the exact same finance information.
A salaried employee does not necessarily need any extra information on their pay stubs, although it can help to put details like overtime pay and sick pay on there if your business offers those things. The more detail you can add, the easier it becomes to break down an employee’s salary.
When paying salaried employees, making a spreadsheet with automated calculations for tax and other contributions can be the best option. This allows you to quickly insert the accounting information and build a pay stub that only requires the bare minimum of tweaking to use.
Waged Employees
An employee who is paid a wage will earn more for each hour that they work, at least under normal conditions. This means that they have a set hourly rate rather than a weekly or monthly rate and have to be paid according to the number of hours worked.
This can make it harder to pay them easily since you need a way of recording their hours, inserting them into a database or spreadsheet, and then using those to calculate how much pay they have earned. If you have a system set up to record this already, like a clock-in system, then this can work.
Creating pay stubs for waged employees is easier than it sounds, but it takes more time to set up the basic framework. Employees who are paid by the hour need to have their hourly rate multiplied by how many hours they have worked, which you can usually set up with a simple spreadsheet calculation.
Remember that other factors can also apply. If you offer sick pay or overtime pay, then this needs to be added as well, which might deserve its own field in the pay stub. Breaking down a wage for an employee is important, especially if you need to dispute issues involving their tax later on.
Tax
Pay stubs can be used for more than just communicating an employee’s paycheck. They are also a major part of getting an employee’s tax contributions worked out and telling the employee exactly how much tax they have paid.
This applies to all employees, from a salaried HR worker to a waged employee at a convenience store. Tax applies to almost all employees who earn enough, and that means that your pay stub should include details on how much they pay in tax, as well as retirement contributions.
Figuring out tax is as simple as finding out the relevant tax rates and calculations, then adding them to your default pay stub. It is a good idea to automate this as much as possible and to build a reliable pay stub template since this can dramatically speed up the tax calculations that you need to make.
