How To Manage Payroll: A Guide for SMB Owners

a payroll manager hands an employee a check

You can manage your retail store payroll in five steps. The first is to calculate the employee’s gross pay. Once calculated, calculate deductions and any cash being withheld. The next is to issue paychecks or make direct deposits. Once paid, you must remit payroll taxes to the IRS. The final step is to update your payroll records. You need to keep an accurate record of how your wages were processed and will need payroll records to manage that.

Payroll is one of the most important aspects of running a retail store. The timeliness and accuracy of a payroll system affects employee morale, is indicative of a company’s financial health, and contributes to the stress and well-being of owners and managers. With 17% of employees saying they would quit their job for a single late or inaccurate paycheck, the potential for significant damage from a payroll error is real.

And that’s not to mention the costly fines the IRS levies on 40% of small and medium-sized businesses each year for payroll errors.

Payroll management is a huge responsibility for any store, from those hiring casual help to those looking to scale their team and grow their business. But it can be dry, time-consuming, stressful, and quickly turn into a headache for small business owners if they don’t know how to do it correctly.

If you’ve been struggling with managing payroll at your store and looking for ways to address it, you’ve landed in the right spot. We’ll walk you through what each process of managing payroll entails and what option might be best for your business. You’ll also learn how the right POS software can make your company’s payroll a breeze.

Table of Contents

  1. Register for an employer identification number (EIN)
  2. Set up your payroll process
  3. Collect payroll forms from your employees
  4. Other payroll forms that employers should know about
  5. How to calculate payroll?
  6. Using a POS software with payroll management

Register For An Employer Identification Number (EIN)

The first step to know about managing payroll is to make sure your business meets all the legal requirements to operate as an employer. One of those legal requirements is obtaining an employer identification number, or EIN, to hire and pay employees. EINs are unique numbers (think the business version of a Social Security number) that you’ll use to report taxes and other relevant information to the IRS. Obtaining an EIN is a process that is done online through the IRS website. Your information will be validated during the online session, and you will receive your EIN immediately. Verify that your state tax identification number is the same as the federal number; if it is not, determine if you need to apply for one or if it is automatically assigned.

Set Up Your Payroll Process

Once you have your employee identification number, you can choose the schedule that best suits your business and the decisions that will impact how you manage payroll. Here are some essentials to consider when setting up your payroll process.

Payment schedule

The payment schedule lets you know how often you want to pay your employees. Do you want to pay them monthly, bi-monthly, or weekly? It’s up to you to decide what’s convenient for you. 

Tax payment

Plan for important quarterly tax return dates, holidays, and annual tax return dates. Remember, you will need to do this at the beginning of each year. Also, find out how often you will have to pay taxes and what taxes you will be subject to. Will you have to pay state taxes? Local taxes? Find out the rates ahead of time so you know how much you have to withhold.

Payment options for your employees

It is essential to also establish each employee’s preferred method of delivery. Most companies typically use paper checks, direct deposits, payment cards, or cash. 

Payroll processing and calculation

You need to determine how you will calculate payroll. Will you do it manually using Excel, a payroll service, or your point of sale software payroll system?

Collect Payroll Forms From Your Employees

Once you have set up your payroll process, you need to collect some vital payroll documents each time a new employee is ready to start work. These documents consist of tax and work authorization forms that employees must sign. You will use the data on the forms described below to add the employee to your HR or payroll system. It is advisable to keep these files as hard copy paper documents or as secure electronic personnel files.

Federal W-4

A W-4 form is the federal withholding document that tells you the correct federal income tax rate based on factors such as marital status, dependents, other employment or income, and deductions. It must be submitted by the employee on or before the first day of employment. Obtain a signed federal W-4 form prior to starting employment. Each time their personal or financial situation changes, your employees can complete and return a new W-4, and the IRS issues a new W-4 each year.  These are two excellent reasons for employees to review their W-4 status each year. Encourage them to do so. Though as the business owner you do not need to submit it to the IRS, it’s important to file it away in your business records.

State W-4 or equivalent

The state W-4 form is a tax document that works as a guide for employers to withhold a specific amount from each paycheck to pay state taxes. It works the same way as the federal W-4 form in that it informs your employer of your withholding requirements

However, there is a difference between the state W-4 forms and the federal W-4 form. All employees in the United States complete a federal W-4 form, but not all employees complete a state W-4 form. Tax withholding and form requirements vary depending on the state in which you reside. Make sure to collect a signed state W-4 for tax withholding and securely file it away as well.

I-9 form

The I-9 form is used to verify the identity and employment authorization of persons hired for employment in the United States. The form must be provided within three days of the employee’s start date. All U.S. employers must properly complete the I-9 form for each individual they hire for employment in the United States. This includes citizens and non-citizens.

Other Payroll Forms That Employers Should Know About

The above list of payroll forms that employers will need is far from exhaustive. Other less structured forms may also be useful to help you organize your company’s payroll processes. While these aren’t typically the responsibility of the employer, it’s nonetheless important to educate your employees about any relevant forms that they may need.

  • W-2 Form: This form serves as a report of total annual wages earned and is used for tax return purposes.
  • Form W-3: Titled the Transmittal of Wage and Tax Statements, this form is used to report total wages and taxes for all employees.
  • Form 941: The Quarterly Federal Tax Return form is used to report quarterly income and FICA taxes withheld from paychecks.
  • Form 944: Also known as the Annual Federal Income Tax Return, this form is used to withhold Return of Annual Income Tax and FICA Tax from paychecks.
  • Schedule H (Form 1040): For household employment taxes, this form serves as a return for taxes on wages paid to domestic employees (nannies, caregivers, etc.).
  • Form WH-347: Called the Certified Payroll Form, this form is to report payroll information for employees working on federal projects.

How To Calculate Payroll?

After you’ve determined the number of hours an employee worked for the pay period, you can begin to perform payroll calculations. This includes gross pay, taxes due, deductions for insurance premiums and other benefits, and final net pay.

Calculate the employee’s gross salary

The employee’s gross salary is the amount you must pay them without any deductions. To calculate the gross salary, simply add up the regular hours (up to 40 hours per week) and multiply them by the employee’s hourly rate. Then add up any overtime hours worked during the pay period and apply the employee’s overtime pay rate to those hours. Regular hours are paid at the employee’s regular pay rate, while overtime is generally calculated at 1.5 times the regular rate of pay. If you’re calculating a salaried employee’s payroll, you will determine the total amount due for that pay period. If you pay yourself as an employee, include your salary.

Bonus Tip!

As a business owner, it is very imperative to monitor the hours of each member of your staff if you want to avoid unnecessary overtime. This is easy to do if, say, you only have five people working in one store. But what do you do if you have several stores that employ hundreds of people?

A POS system with time-tracking software can help you keep track of the whereabouts of each of your employees with little to no effort on your part. The result is streamlined timesheet evaluations and well-planned, timely payrolls. In addition, POS timekeeping software can allow you to track a specific staff member’s work history, alerting you to potential attendance issues before they get far out of hand and holding your employees duly accountable for the hours they claim to be accruing.

Determine deductions and withholdings

As an employer, you must calculate many deductions, including federal income tax, state and local income tax (if applicable), and payroll taxes. Payroll tax is a broader term that includes Social Security and Medicare taxes (known as FICA taxes), federal unemployment taxes (FUTA), and state unemployment taxes (SUTA). 

That’s why it’s imperative to collect the initial forms when you hire a new employee. You’ll need them to determine how much to withhold from each salary. 

Charges such as health insurance, retirement savings plan, or any other benefits you offer will also be deducted from their paycheck. Garnishments, such as child support or federal tax deductions, may also be subtracted.  

To calculate these deductions, add up all the deductions for each employee to get a total, then subtract that from the employee’s gross pay. Alternatively, you can list each deduction as an item and deduct them from the employee’s gross salary until you get the net salary. There are also state-specific resources to help you get accurate numbers, such as this Texas payroll calculator.

Using a POS Software With Payroll Management 

Starting a business and finding the perfect payroll solution can be nerve-wracking and overwhelming. With all the different options and variables, it’s hard to find the best solution. A POS system integrated with a payroll management system can offer you the ease and efficiency of paperless payroll and help you manage everything from your employee payroll to taxes and benefits. 

KORONA POS is a point of sale software with a fully integrated payroll solution that consolidates all employee data in one centralized location. All-time clocks, schedules, vacation days, and calls are uploaded and stored. When it’s time to process payroll, there’s no need to pull out the calculator and use specific formulas.

An optimized payroll system will perform these calculations and ensure the accuracy of all payments. In other words, the POS payroll system does all the complicated work, so you don’t have to. A solution like this can be a game-changer in a retail store with multiple employees. If 

If you want to learn more about how to do payroll with KORONA POS, click on the button below. 

FAQs: Checkout Optimization for eCommerce Retailers

How do you manage payroll effectively?

No matter which method an employer chooses to manage payroll, there are several basic steps that apply to most methods: The first step is to obtain an EIN from the IRS. Then, collect and update employee data. Calculate the gross salary. Deduct any taxes or other deductions from this salary to get the net salary. Pay employees. Pay government agencies and benefit providers.

How to manually calculate payroll for your small business?

You can manually calculate payroll for your small business by first preparing your company to process payroll by obtaining an employer ID number and state tax ID number. Then calculate the gross pay, subtract the pre-tax deductions, and calculate the employee payroll taxes. Subtract the after-tax deductions and calculate the net salary. This net salary represents the salary to be given to your employee. 

What is a POS payroll?

POS payroll is a point of sale software with a payroll management system to manage your business better. It helps you keep track of your employees’ activities and responsibilities and their working hours. It also enables you to control your company’s budget and expenses and easily manage your inventory.

How to do your own payroll for small business?

Have all employees complete a W-4 form. Obtain an employer identification number. Choose your payroll schedule. Calculate and withhold income taxes. Pay payroll taxes and then finally file the tax forms and employee W-2s.


About the Author

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Mahougnon Martial Amoussou

Passionate about SEO and Content Marketing. Martial also writes about retail trends and tips for KORONA POS. He loves NBA games and is a big fan of the Golden State Warriors.