When I left Briones, McCready, Harvey & Trevino (now Briones, Harvey & Trevino) to start my own firm in 1999, paying myself was easy. When I settled a case, I paid the bills and then paid myself. It was simple. Then I hired a secretary and it got slightly more complicated. I managed to pay federal and state taxes, social security and medicare as well as unemployment taxes for myself and my secretary. But, at the end of the year, I spent a lot of time reconciling and making sure I paid the correct amounts. I did not go to law school for these headaches.
I know a lot of small firms and solos who still do it this way. I had an epiphany when I discovered payroll services. A payroll service takes all the work and headache out of employment taxes. Now that my staff is up to 13, a payroll service is a necessity.
First, a little about exactly what payroll services do. Although I refer to employees, the concepts apply if you have no employees other than yourself. First, enter basic information about your employee including rate of pay (hourly or salary) as well as any vacation, sick or personal days as applicable. The rest is automated. Payroll companies will calculate and pay the taxes and generate a paycheck for you and your employees.
Tracking employee hours
Many payroll services incorporate time clocks. These time clocks automatically upload the employee hours and generate a check. My hourly employees clock in each day, and at the end of the week, they have a paycheck with all taxes correctly calculated and paid. I have my salary employees clock in as well. It does not impact their paycheck each week, but it is important for me to know who is working how much. Edwin is at the office so much, I had to tell him to stop working as many hours as he was! Several of my employees work remotely, so they can clock in through a secure web site. Time clocks integrate with the payroll service, but they are not necessary. You can manually enter the number of hours an employee works each week, it’s just another step.
The biggest advantage to me is the automatic payment to all the various taxing entities. Payroll services handle all the federal taxes, including employer and employee portions of social security and medicare, as well as employee federal and state tax withholding. State and federal unemployment taxes are also filed automatically. No papers to fill out, no checks to write, no dates to remember. Quarterly 941 filings are likewise made automatically.
Payroll services also manage employee benefits. We provide health insurance, 401(k) and profit sharing plans. Payroll programs take out the employee portion of health insurance each period. Payroll programs make contributions, both employee and employer, to our 401(k) program, all automatically. End of the year profit sharing is also done through the payroll service. The thought of managing all of these deductions and payments is daunting.
Vacation and Sick days
I also use the payroll program to manage vacation and sick days. Each employee is entitled to three paid sick days per year. After that, it comes from vacation or is unpaid. Because all vacation day requests are handled through the payroll system, I can be sure that vacations do not overlap in a way which would impact the office. Everyone knows how many vacation days they have, when they took them, and when they are scheduled. No disputes, disagreements or misunderstandings in my office over sick days and vacation days.
End of the year made easy
Payroll services automatically generate W-2’s for your employees. All those payments they make over the course of the year are automatically calculated (correctly I may add) and magically appear in a W-2. Of course, payroll services also file your W-2’s. Before our payroll service, I would spend time making sure the W-2’s were correct. No more.
Sounds too good to be true? What does it cost?
There are some lawyers who use their accountants or book keepers to serve these functions. However, payroll services can do it much cheaper. Payroll services are largely a fungible commodity, meaning they all offer similar services. So, comparison by price is easy. While some have bells and whistles, you can easily compare companies and select the least expensive for your needs. Pricing on most payroll companies is based on number of employees and/or amount of payroll. Figure out which one works best for you, both now and looking into the future.