Payroll Management Tips for Growing Businesses

Managing payroll is one of the most important—and complex—responsibilities for growing businesses. Payroll errors can lead to unhappy employees, IRS penalties, and legal issues. Whether you're hiring your first employee or managing a growing team, these tips will help you streamline your payroll process and stay compliant with New York state regulations.

1. Choose the Right Payroll System

You have three main options for processing payroll:

• DIY Manual Payroll: Calculating and filing everything yourself (not recommended for most businesses)
• Payroll Software: Tools like QuickBooks Payroll, Gusto, or ADP that automate calculations and tax filings
• Full-Service Payroll Provider: Outsource everything to professionals who handle processing, taxes, and compliance

For most Brooklyn small businesses, payroll software or a full-service provider offers the best balance of cost, convenience, and accuracy.

2. Classify Workers Correctly

One of the most common payroll mistakes is misclassifying employees as independent contractors. The IRS has strict rules, and misclassification can result in significant back taxes and penalties.

Employee vs. Independent Contractor:

• Employees: You control when, where, and how they work. You must withhold taxes, pay unemployment insurance, and provide workers' compensation.
• Independent Contractors: They control their work methods and typically work for multiple clients. You don't withhold taxes—they receive a 1099-NEC instead of a W-2.

When in doubt, consult with an accountant or employment attorney to ensure proper classification.

3. Understand New York Payroll Tax Requirements

New York has specific payroll tax obligations that employers must meet:

• Federal Income Tax: Withheld based on employee W-4 forms
• FICA Taxes: Social Security (6.2%) and Medicare (1.45%) - both employer and employee portions
• New York State Income Tax: Withheld based on NY-IT2104 forms
• New York City Income Tax: Additional withholding for NYC residents
• State Unemployment Insurance (SUI): Employer-paid based on experience rating
• Disability Insurance: Required in New York State
• Workers' Compensation: Required for most businesses with employees

4. Set Up a Consistent Payroll Schedule

Establish a regular pay schedule and stick to it. Common options include:

• Weekly: Every week (52 pay periods per year)
• Bi-weekly: Every two weeks (26 pay periods)
• Semi-monthly: Twice a month, usually 1st and 15th (24 pay periods)
• Monthly: Once per month (12 pay periods)

Bi-weekly and semi-monthly schedules are most common for small businesses. Whatever you choose, ensure it complies with New York State wage payment laws.

5. Keep Detailed Payroll Records

Federal and New York State law require you to maintain payroll records for at least 6 years, including:

• Employee names, addresses, and Social Security numbers
• Hours worked and pay rates
• Gross wages and deductions
• Tax withholding amounts
• Pay dates and pay periods
• W-4 and NY-IT2104 forms

6. Calculate Overtime Correctly

Under federal and New York State law, non-exempt employees must receive overtime pay (1.5× their regular rate) for hours worked over 40 in a workweek. Some industries have different rules, so verify the requirements for your business.

7. Manage Employee Benefits Through Payroll

If you offer benefits, integrate them with your payroll system:

• Health Insurance: Pre-tax deductions for employee contributions
• Retirement Plans: 401(k) or IRA contributions and employer matching
• Paid Time Off: Track accrual and usage
• Flexible Spending Accounts (FSA): Pre-tax deductions for medical or dependent care

8. File Payroll Taxes On Time

Missing payroll tax deadlines can result in severe penalties. Key deadlines include:

• Monthly or Semi-weekly: Federal payroll tax deposits (varies by deposit schedule)
• Quarterly: Form 941 (federal payroll tax return) and NYS-45 (New York payroll tax return)
• Annually: Form 940 (federal unemployment tax), W-2s and W-3 (by January 31)

Using payroll software or a service provider ensures taxes are filed automatically and on time.

9. Stay Updated on Minimum Wage Changes

New York State frequently adjusts minimum wage rates. As of 2024, NYC minimum wage is $16.00/hour for most employers. Stay informed of annual increases to ensure compliance.

10. Conduct Regular Payroll Audits

Review your payroll records quarterly to catch errors early:

• Verify employee information is current
• Check that tax withholdings are correct
• Confirm benefit deductions are accurate
• Review overtime calculations
• Ensure proper recordkeeping

11. Protect Sensitive Payroll Data

Payroll information includes Social Security numbers, bank account details, and salary data. Implement security measures like encrypted software, limited access, regular backups, and secure document disposal.

12. Work with a Payroll Professional

Payroll compliance is complex and mistakes are costly. Many Brooklyn businesses find that outsourcing payroll to a professional service or working with an accountant saves time, reduces errors, ensures compliance, and provides peace of mind.

At Accounting Standards Inc, we offer comprehensive payroll services for Brooklyn small businesses, including payroll processing, tax filing and compliance, direct deposit setup, year-end W-2 and 1099 preparation, and ongoing support and guidance.

Ready to simplify your payroll? Contact us today to learn how we can handle your payroll management so you can focus on growing your business.