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6 Payroll Tips to Help Your Startup Stay Financially Fit
As an entrepreneur, it’s imperative to have a good grasp on your payroll records to ensure you are properly compensating yourself, your employees, or your contractors. You also want to be certain that you’re giving the IRS your fair share in payroll taxes by staying compliant. Use these handy tips for startups that can be easily applied to any new or established business.
1. Outsource to a professional.
It’s almost always best to let someone else handle your payroll needs. Let a specialist take care of these duties for you to be certain that you’re following all compliance rules and regulations for startups at the local, state, and federal levels. There are significant penalties at play for filing your payroll tax returns late or failing to provide adequate withholding deposits. This is why letting an expert in the field do all of this for you can be a savior.
2. Get an EIN for your business.
As a startup, you need an Employer Identification Number (EIN) to do your payroll. If you’ve already launched a formal corporation or partnership, you should have obtained an EIN for your startup. If you do not have an EIN, you must get one from the IRS to include on documents for payroll processing and taxes.
3. Be sure to properly classify your cohorts.
Have you hired 1099 independent contractors to work in your startup? Do you employ W-2 workers whom you offer a full benefits package with paid vacation time and health insurance? Be sure you properly classify all individuals whom you compensate for the work they perform in your business. The work status of each member of your team can have a big impact on how you go about handling various filings.
4. Consider offering employees fringe benefits.
Offering a pay raise to a hardworking employee in your startup is a very rewarding gesture for them. But such a salary boost immediately increases your payroll tax bill. Giving fringe benefits is a more financially wise strategy. Fringe benefits are typically tax-free forms of compensation or reward, such as a company-provided laptop, dental insurance, and even a retirement plan.
5. Create and maintain a P&L statement.
A profit and loss (P&L) statement is a record designed to help owners of startups maintain a solid grasp on their monthly business budgets in terms of their cash flow and regular expenditures. This financial information is very useful when determining your payroll taxes. It can also aid in finding new ways to reduce your overall business expenses.
6. Open a second business bank account specifically for payroll purposes.
To help you set aside money over time that can be used to cover your payroll expenses and taxes, it makes perfect sense to open a separate bank account just for this purpose. Maintaining this second account should guarantee that you’ll have adequate money at your fingertips that is separate from other business funds to cover all payroll-related expenses.