Definition: The administration of the financial record of employees' salaries,
wages, bonuses, net pay, and deductions
An employer, regardless of the number of workers they employ,
must maintain all records pertaining to payroll taxes (income tax
withholding, Social Security and federal unemployment tax) for at
least four years after the tax becomes due or is paid, whichever is
later. Altogether, 20 different kinds of employment records must be
kept just to satisfy federal requirements.
Income Tax Withholding Records
1. Name, address, and Social Security number of each employee
2. Amount and date of each payment for compensation
3. Amount of wages subject to withholding in each payment
4. Amount of withholding tax collected from each payment
5. Reason that the taxable amount is less than the total
payment
6. Statements relating to employees' nonresident alien status
7. Market value and date of noncash compensation
8. Information about payments made under sick-pay plans
9. Withholding exemption certificates
10. Agreements regarding the voluntary withholding of extra
cash
11. Dates and payments to employees for non-business services
12. Statements of tips received by employees
13. Requests for different computation of withholding taxes
Social Security (FICA) Tax Records
1. Amount of each payment subject to FICA tax
2. Amount and date of FICA tax collected from each payment
3. Explanation for any difference
Federal Unemployment Tax (FUTA) Records
1. Total amount paid during calendar year
2. Amount subject to unemployment tax
3. Amount of contributions paid into the state unemployment
fund
4. Any other information requested on the unemployment tax
return
Payroll for a small firm is a simple task with a good one-write
system. Any office supply store can show you samples of one-write
systems, which most accountants recommend because they reduce
errors and save time in making payroll entries.
Payroll management can be quite a challenge for the new business
owner. There are many federal and state laws regulating what you
have to track related to payroll. Failure to do so could result in
heavy fines--or worse.
Many business owners use outside payroll services. These
companies guarantee compliance with all the applicable laws. This
keeps the business owner out of trouble with the law and saves time
that can be devoted to something else in the business. If you
choose to do your own payroll, it's recommended that you purchase
an automated payroll system. Even if the rest of your books are
done manually, an automated payroll system will save you time and
help considerably with compliance.