Payroll tasks take up around 5 hours per week for a small business owner. This time, while well-spent, could be better spent elsewhere. All small business owners who run payroll know just how much of a challenge it can be unless they’re accountants with prior experience.

1. Start the Year With Employee Categorization

Employee categorization is essential to start the year. When your employees are not categorized properly, this can cause your payroll to be chaotic. Why? You need to know who will be exempt from overtime or not.

Start the year taking a look at all of your employees’ categorizations. Properly determine things like who is an hourly employee and who is a salaried employee, and who is an employee or independent contractor. Hourly employees will be paid overtime. Employees and contractors have different methods of withholding and tax filings (W-2 vs. 1099).

Now is a good time to do a complete payroll system audit, too. This will allow you to be able to find any potential payroll issues that need to be corrected. If possible, assign someone to be your payroll administrator to take care of these potential issues.

2. Start the Year with Payroll Year End

The calendar just switched, and it’s time to start getting everything prepared for the New Year. Payroll end of year should be completed, and this means payment of all of your payroll taxes, too.

Employers are required to file:

• W-2s
• Form 491
• Form 1099

All of this information must be filed by January 31, so you should already be working on it. All of these amounts, which will be calculated from all of the forms, will help determine your payroll tax schedule for the upcoming year.

If you’re reading this past the deadline, start with the W-2 filing first. You may be hit with fines for being delinquent, and these fines will add up quickly. Filing an extension is also recommended, but you want to try your best to always meet deadlines.

3. Make Sure You’re On Top of Record Keeping Requirements

Records need to be kept for a different time span, depending on the type of record it is. When an audit happens, you’ll need to have quick access to these records to ensure that you have all of the documentation needed to satisfy auditors.

Payroll and tax information will need to be kept.

Cloud-based solutions makes keeping all of these documents as easy as possible. The IRS recommends that you:

• Keep employment records for four years
• Keep all tax documentation for three years

These recommendations are just the minimum amount of time to keep records. With cloud storage options, you may want to keep all of this documentation for even longer.

4. Brush Up on Federal and Local Laws

Laws change often, and it’s up to you to keep current on all of these laws. There are numerous levels that may impact a small business:

• Federal
• State
• Local

An in-house attorney is often the best source of information to make sure that all of your payroll adheres to these laws. There will be laws for everything, from minimum wage to overtime and even age of workers.

You need to monitor all of these laws to ensure that you follow all of them.