Payroll is the compensation a business must pay to its employees for a set period or a given date. In most prominent companies, it is handled by the HR department, but the owner in small businesses usually handles it.
Having established what payroll means, it's safe to say that you and I both know how challenging it can get if your business has terrible finance management.
Get your Taxpayer Identification Number (TIN)
Firstly, get a TIN with the Joint tax board of Nigeria or the Federal Inland Revenue Service (FIRS). This number is issued to you to identify your business as a duly registered taxpayer in Nigeria.
If your business is new, you'll have to apply for a TIN and fill out a tax form; You can read about how to use a TIN and learn more about it on the FIRS website.
Although, depending on your business size, you may not be required to get a TIN. But to be on the safe side, you would usually need a TIN to obtain a CAC certification when you register your company. This is so that you can apply for licenses, file payroll taxes, or even open a bank account in your business's name.
Create a payroll schedule.
This is a crucial decision you have to make as a small business owner from the beginning. It would help establish the payment frequency and salary status you want to pay your employees. Basically, you should decide on a pay period.
There are four payment schedules for you to choose from: weekly, biweekly, semiweekly and monthly. No pressure, carefully consider which type you think fits your small business best. And the salary status is to determine whether or not you want to pay your employees hourly or an accumulated pay range for their respective roles. Research federal and state laws to ensure that you are meeting your area's minimum wage or salary laws
Tip: Don't take so long that your employees go without pay for limited periods.
Take notes of deductions, allowances, and other withholdings.
After ample research, we found that it is imperative in payroll processing to determine the deductions and allowances each employee is entitled to.
These deductions and allowances are the same: They refer to how much money is taken out of your paycheck during the year. So say for things like HMO's, Taxes, pensions, etc.
Create a payroll system
A payroll system or process is a detailed and documented system that helps you track human resources, the time duration they have worked for, and calculate how much money has been spent on human resources. Unfortunately, terms like "payroll processing" and "payroll system" make the concept of paying employee salaries a little complicated, even though it isn't.
A proper payroll system reduces the risk of not paying employees and probably getting sued; it also improves your overall business operations.
These are the different payroll systems to consider in running your business.
- Manual Payroll System: Even in this age of technology where everything is done electronically, some small businesses still choose to do payroll by hand, mainly because it saves costs. But, the one thing they miss is that it is challenging, tiring and time-consuming, and prone to mistakes.
- Outsourced Payroll System: Here, you can hire someone to do your company's payroll. In most companies, this is usually done by an accountant. They will handle everything, from processing paychecks to handling tax deposits, payroll taxes, employment taxes, etc.
- Payroll Software: With Payroll software, you get an automated solution to your problems, one that manages, maintains, and automates payments to employees. This software combines everything you could need, from accuracy to convenience to affordability, and you technically get the best.
Be in charge of Your Cash Flow.
Having a lousy finance management system would lead to your business never having enough funds to pay employees. If you regularly find yourself in this situation, look at your financial report, which should help you identify the issue's root.
If you're always short of funds during the payroll period, try properly tracking your sales, expenses, and overall cash flow. Monitoring your cash flow will help you spot potential payroll problems you may encounter.
Tip for times when funds get tight; try to delay supplier payments a bit and collect debts on outstanding customer payments before resorting to more extreme measures to get funds.
Finally, before choosing the kind of payroll system you feel is best for your business, you should consider your budget: how much you are willing to spend.
The number of employees you have; payroll is very easy for small businesses with few employees.
Note: The Kippa content team members are not certified income tax or accounting professionals, and we cannot give you advice on these subject matters. Although what we have done in this post is provide you with detailed information from ample research. If you need more professional insight on topics related to taxes and the like, please be advised to contact an accountant in your area.