The 5 Costs of Running Payroll

"The 5 Costs of Running Payroll" Payroll Binder Graphic
March 18, 2018
75 / 100

~by Christine Schoaff~

You turned your great idea into a business. Now it is growing to the point where you need extra help, and you have enough cash in hand, or projected to come in, to pay someone. You considered the options for business relationships (see ‘What Business Relationships are Best for Your Business?) and you have decided to hire a W-2 based employee. Another situation is that you have reached the cash flow point where, as an owner, you will begin to take a salary.

Now how do you decide how much you can afford to pay in salary? One important consideration is the overall cost of payroll. As a rule of thumb, basic payroll has additional costs of 10% to 20% of the payroll amount or total salaries paid.

Here are five costs included in running payroll:

1) Payroll processing: You can decide if you want to run payroll yourself or pay a service to do so. Some on-line options are in between. Usually, the do it yourself is set up in Quickbooks or another accounting program. Costs can be one-time for software, monthly, or per payroll. With a service, there is often an additional per-employee charge.

2) Direct deposit, paper checks or cash: You can require your employees to provide banking information to allow direct deposit. If you use paper checks, you need to buy check stock for your payroll account at the bank; this may be your operations account or a separate account. If it is paper checks, be sure to let your employees know if you will mail the check to a home address or require them to come and personally pick it up. It is no longer common to pay employees with cash. A check written at a local bank can often be cashed there, and is better because it provides built-in documentation.

3) Federal taxes: You must withhold some money for the employee paid portion of taxes from each paycheck. This will be federal income tax withholding and other employee paid taxes. As the employer, you must also provide an additional amount of money to cover the employer’s portion of the taxes. For example, in 2015, Social Security tax is 12.4%, with half, or 6.2%, paid by the employer, and 6.2% paid by the employee. Medicare taxes are similar. Federal unemployment is paid only by the employer. Payroll systems have the various tax rates and calculations included.

4) Other tax authorities: If the state in which the employee resides has a state income tax, it will work much like the federal tax. In some places, cities and counties also levy taxes. If you must also withhold due to a court order specific to an employee, that is similar to another taxing authority and you must follow the appropriate forms, filing deadlines, and other administrative processes. States also require the employee to pay unemployment taxes. This covers the costs to the state when an employee files with them for unemployment benefits.

5) Other costs in time and money: At the end of the year, you will need to provide your employees with W-2 statements. Note that you need to send all taxes you collect to the appropriate taxing authority — federal and state, usually monthly to start, and then more frequently as the amount of payroll taxes increases. There are also quarterly and annual tax forms that need to be filed.

Bonus: Always consider the time you will spend running payroll. You need to decide if you will pay weekly, every other week, monthly, or some other time frame. Every payroll run will require time and costs from you or a service.


The 5 Costs of Running Payroll 1Meet the Author: Christine Schoaff

Christine Schoaff has been an entrepreneur and intrapreneur in opportunities from start-up to mid-size to Fortune 500. She has worked extensively with family run businesses in a variety of industries.

Christine Schoaff

919-335-5663

Categories

More Posts:

The Power of Women-Owned Small Businesses

     Women-owned small businesses are on the rise, and their impact is undeniable. In fact, in 2019 alone, women-owned nearly 12 million businesses that employed nearly 9 million people and generated over $1.9 trillion in revenue. From retail to technology to finance,...

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

Product Mistakes You Might Be Making at Your Business

Running a business isn’t easy, and making product-related mistakes can cost your company time and money. From creating products without doing market research to holding excess inventory or failing to file patents, there are numerous pitfalls that you need to be aware...

What You Need to Know Before Hiring a Financial Advisor

As a small business owner or entrepreneur, you’ve likely felt the pressures of finances and budgeting. If you’ve been struggling to manage your company finances, you could benefit from working with a financial advisor.  Here are a few things you should know before...

How Entrepreneurs Can Stave Off Burnout

Have you been feeling more stressed and exhausted than normal lately? Everyone experiences burnout at some point in their career, and this is even more common with entrepreneurs due to the many responsibilities that they have. Here are a few ways to stave off burnout...

Precious Metals & Investing in Your Financial Future

Investing in different precious metals is a great way to increase your portfolio. While you can invest in silver and gold, you should also consider investing in Palladium, because it is a metal that is used in industrial applications. Gold is the most investable...

Why You Need to Be Specific When Writing a Will

No one likes to think about death, but it is something that we all have to face at some point in our lives. If you have children, it is especially important to make a will so that you can ensure that they are taken care of after you're gone.  These are a few reasons...

A Five-Step Guide to Starting a Logistics Company

If you've been considering launching a transportation and logistics company, now is the moment. The transportation and storage sector is very important and profitable. Statistics show that by 2027, the global logistics market would have grown from its 2017 valuation...

Strategies and Technology for Female Entrepreneurs

Since entrepreneurship is the foundation of any nation's economy, it is essential to economic development in developed and developing nations. In the last several decades, there has been a significant improvement in the role of women in our society. Women are now...

Role of female entrepreneurs in a changing society

Over the past few decades, there has been a significant increase in female entrepreneurship. More women are choosing to launch their businesses and participate in the world of business creation, one of the rapidly expanding facets of entrepreneurship globally. But in...
Nyago Michael Emmanuel

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

What You Need to Know Before Hiring a Financial Advisor

What You Need to Know Before Hiring a Financial Advisor

As a small business owner or entrepreneur, you’ve likely felt the pressures of finances and budgeting. If you’ve been struggling to manage your company finances, you could benefit from working with a financial advisor.  Here are a few things you should know before...

Precious Metals & Investing in Your Financial Future

Precious Metals & Investing in Your Financial Future

Investing in different precious metals is a great way to increase your portfolio. While you can invest in silver and gold, you should also consider investing in Palladium, because it is a metal that is used in industrial applications. Gold is the most investable...

All Categories

Business Operations

Entrepreneur Interviews

Marketing, Networking, & Social Media

Self Care & Personal Development

Working Moms

Business Software and Technology

Entrepreneurship & Small Business

Organizing Tips

Sales

Career Building

Family Businesses

Inspiration

Starting Your Own Business

Work-Life Balance

Communication

Hiring Help

Management & Leadership

Time Management & Priorities

Women in Leadership

Recent Posts

What to Do When Your Vehicle Lease Comes to an End

What to Do When Your Vehicle Lease Comes to an End

As your vehicle lease reaches the end of its term, you are presented with three options: return the car to the dealership, sell the lease or buy it outright. Each choice obviously has benefits and drawbacks that must be weighed before making a decision. In this...

The Power of Women-Owned Small Businesses

The Power of Women-Owned Small Businesses

     Women-owned small businesses are on the rise, and their impact is undeniable. In fact, in 2019 alone, women-owned nearly 12 million businesses that employed nearly 9 million people and generated over $1.9 trillion in revenue. From retail to technology to finance,...

Nyago Michael Emmanuel

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

Soe Tun: The Copy Doctor

Soe Tun: The Copy Doctor

Autistic kid finds out that he’s unemployable and doesn’t enjoy most social settings. Decides to be a pro copywriter as a result.

Annie Anderson – Business Strategist & WordPress Creator

Annie Anderson – Business Strategist & WordPress Creator

Annie Anderson is the owner and digital creator at Midnight Rebel Digital Co. With over 25 years experience in design and development and more than 15 years experience with WordPress, Annie is a great person to have in your corner when it comes to websites, tech, and systems.

How Startups Can Ensure Health and Safety at the Workplace

How Startups Can Ensure Health and Safety at the Workplace

Everyone, including the owners, management, and staff, is responsible for ensuring workplace safety. All parties must take the proper steps so that no one is harmed while working. If you are looking for ways to keep your workplace safe, here are ten tips to help you out.