The One Change That Could Simplify Payroll for Your Small Business

As a small business owner with one employee (me), one of the most surprisingly complicated aspects of running a business was: running payroll. That's right -- just processing those monthly paychecks and calculating tax withholdings quickly proved to be a brain-buster for me.

It's not easy to get the numbers right when you're estimating payroll tax withholdings for state, federal, and FICA taxes. And getting the numbers right is important -- you don't want to under-pay the tax authorities.

For many years, I outsourced payroll to my accountant, who ran payroll for me and made sure my quarterly taxes got paid. Then after my accountant stopped offering this service, I switched to using payroll software.

If you're a small business owner who is still running payroll manually, or if your accountant doesn't offer payroll processing services, you really need to make this one big change: switch to payroll software.

Here are a few reasons why using payroll software can make your life as a small business owner infinitely easier.

1. Payroll software gets the numbers right

I'm the owner of a company of one, so my payroll process is easier than that of most businesses. But if you have a few employees, the complexity multiplies. You have to make sure that on every payday, your employees' paychecks get the correct amounts withheld for:

• Federal income tax
• State income tax (if your state charges income tax)
• Local income tax (if applicable)
• Actual "payroll tax" withholdings (like Social Security and Medicare)

These calculations aren't simple, and they vary based on your employees' income, number of dependents, form W-4 tax withholding selections, and more. Every employee at your company might potentially have different tax withholding amounts on their pay stubs. Do you really want to keep track of all of that via manual processes and spreadsheets? I don't!

2. Payroll software integrates with tax authorities

The best payroll software will make it easy to not only withhold taxes from your people's paychecks as required, but make sure the taxes get paid to the federal, state, and local (where necessary) government revenue authorities.

It's a big relief to know that you have an experienced, reputable payroll software company on your side to get your taxes paid on time. My accountant used to take care of all of this for me, and it worked just great; I never had any issues.

But then when I had to start managing my own payroll for the first time, I quickly encountered an issue with my state's Department of Revenue. I had to call and talk to the staff to make sure I had the right account number for the right taxes, and that my payroll software would work with the state's systems.

When I told the Department of Revenue the name of my payroll software, they immediately recognized the brand. "We work with that company all the time, and you should be fine," they said. The last thing you want as a small business owner is a tax glitch. Good payroll software makes tax payments go more smoothly.

3. Payroll software saves you time

Think about the value of your time as a small business owner. How much money do you make in a year? Divide that number by 1,000 and then again by two. That's your hourly "rate" for the value of your time. So if you earned $200,000 last year, your time is worth about $100 per hour. If you spend five hours per month fiddling around with manual payroll processes, it costs you $500 per month! And it's not even fun!

Instead of squandering your time on the baffling, unfulfilling activity that is payroll, just leave it to the experts. Good payroll software costs a lot less than the value of the time you save. It's an investment in your business that pays emotional dividends, as well as financial rewards. And many of the best payroll software tools have great mobile apps now, so you can run payroll anytime from your phone. No spreadsheets or number-crunching required.

4. Payroll software gives you easy-to-find electronic records

One reason I love my payroll software is that it sends me an email receipt every month (and each quarter) with the monthly, quarterly, and year-to-date numbers for my payroll tax withholdings. It's easy to save these electronic records and have all my tax information in one place. No more paper, no more overstuffed file folders, no more space-hogging file cabinets. Electronic records make your business bookkeeping so much simpler.

5. Payroll software makes tax time stress free

Want to get better at planning ahead for tax time? Payroll software can help with that, too. The best payroll solutions typically integrate with the most popular accounting software, so you can keep accurate, up-to-date records on how much tax you've paid, how much you've paid your employees, and other details.

Payroll software has made my tax planning so much simpler, because I know how much I'm paying throughout the year in federal income tax and state income tax. It helps me plan ahead for how much additional money I might need to save, or other advantageous tax moves that small business owners can make, like putting more cash into a SEP IRA or other retirement accounts.

Bottom line

Unless you're some kind of payroll enthusiast who loves manually calculating FICA percentages and income tax withholdings, I don't know why anyone in 2024 would still be running payroll by themselves. Get professional help if your accountant offers payroll processing as an add-on service. Or just try one of the best payroll software solutions. Payroll software makes it easy, saving you time and money -- and gives you happier paydays all year long.