In 2020, the IRS incurred $6 billion in employer penalties against numerous US companies.
Perhaps not surprisingly, the most time-consuming part of owning a business, for 4 out of 10 SME owners, is doing taxes and bookkeeping.
To avoid the pitfalls of faulty bookkeeping and tax management, companies should have functioning payroll mechanisms in place.
In this article, we will discuss payroll reporting – what it entails, how to conduct it properly and what benefits businesses can expect from having a sturdy payroll report system.
Table of Contents
What is Payroll Reporting?
A payroll report is a document that contains pay rates, employees’ hours worked, withheld federal and state income taxes, vacation or sick days, incurred overtime, tax withholdings, and benefit expenditures, among other things.
Responsible departments (Finance or HR) generate payroll reports for each pay period. A federal or state government body must declare specific payroll reports quarterly or annually. Specialized payroll services experts are commonly hired by businesses of all sizes to help them stay on top of these reports and other relevant compliance issues.
5 Main Payroll Report Types
Organizations of different sizes and purposes utilize numerous payroll report kinds. Here, we will focus on five main types suitable for companies of all sizes.
1. Company Payroll Reports
Company payroll reports provide a detailed overview of the company's overall payroll expenses over a specified period.
Companies use this information to forecast their monthly payroll cash requirements more precisely. With this type of report, they can also calculate FICA (Federal Insurance Contributions Act) taxes quarterly.
2. Employee Payroll Reports
Employee payroll reports (a pay stub or employee earnings report) focus on a single employee. They contain employees’ salaries, taxes and deductions. Every employee should receive this monthly and have complete access to previous reports.
3. Federal Payroll Reports
Each company must submit several federal payroll reports and file them with the IRS. Depending on the nature of the report, you may need to file it more frequently (quarterly) or less frequently (monthly or annually).
4. Payroll Tax Reports
These reports are commonly the biggest concern for employers because they don’t allow for any mistakes, as they are filed with the federal government.
As a business owner, you must create these reports annually and quarterly to show your employees’ salaries. You then provide these to the federal, state and municipal governments for them to calculate your payroll taxes.
The following federal payroll tax reports exist:
- Form 940: An annual report for Federal Unemployment Tax Act (FUTA) tax
- Form 941: A quarterly report for FICA taxes and federal income tax withholding
- Form W-2: A yearly report for employee compensation and tax withholding
5. Local Payroll Reports
Any enterprise may be required to file local and state payroll reports.
You or your employees may be subject to local payroll taxes depending on your firm's location. As a result, you may be required to produce local payroll reports regularly.
It is advisable to consult your local authorities for relevant and accurate information on local payroll report requirements to verify if you comply with their regulations.
4 Best Practices for Reporting Payroll
To conduct payroll reporting properly, focus your efforts on following these best practices.
1. Make Payroll Reports to Keep Track of Expenditures
For federal income taxes, employers are advised to create annual and quarterly reports. Sometimes it might be necessary to create monthly reports, depending on the industry and specific country’s laws. For small business owners with changeable income, tracking payroll spending more frequently is particularly beneficial.
2. Ensure the Payroll Report Measures the Exact Performance
It's crucial to monitor staff absences and "time theft” - the instance in which employees charge companies for the extra time that does not sum up to their work productivity. Payroll reports help with spotting possible inconsistencies.
3. Use Payroll Software
As manual timesheets have quickly become a thing of the past, businesses everywhere are resorting to digital tools that assist in tracking payroll expenses and taxes. A sturdy software solution can automate payroll checks and eliminate payroll-related issues.
4. Hire the Services of an Accountant
Federal payroll reports are required when calculating employer taxes. However, they can be pretty tricky to understand and navigate, especially if you are new and unfamiliar with them. Therefore, contractor management and hiring a reputable accountant or payroll service provider can assist you in better understanding and handling your tax obligations.
Why Employee Payroll Reports Matter
Making and rolling out employee payroll reports has several distinctive benefits for an organization.
Keep Track of Employee Turnover Rate
Employee payroll data can help in tracking employee turnover. For example, a significant turnover in one department may suggest a lack of employee interest. On the other hand, low turnover may indicate a lack of skill development or ambition within your personnel. Identifying these trends helps with developing proactive remedies.
Recognize Your Employees’ Efforts
If your payroll software or staff fails to monitor critical milestones, the absence of recognition may harm the team’s morale. It is helpful to choose the software solution that will automatically remind you of upcoming birthdays, anniversaries, bonuses and raises. This proactive appreciation on your part keeps employees engaged and feeling like valuable team members.
Maintain Cash Flow
When you pay your employees on time, you keep your business running smoothly and ensure that you are neither underpaying nor overpaying any of your staff. Payroll software can precisely track hours worked, overtime, custom PTO policies, sick days, employee taxes and tax deductions to keep your cash flow steady.
Manage Taxes Accurately
As a business owner, you are responsible for paying your taxes, deducting employee payroll taxes and giving appropriate tax information to your employees. Payroll automation can help you retain all tax papers in one place for easy reference or updates. Furthermore, if you are audited or have a tax deadline, you will have all your documentation organized to save the time it takes to settle with the IRS.
Make Most of the Customization Options
Because your company is different from your competitors, you shouldn’t run basic payroll reports only. The best payroll software can help you create bespoke reports to keep you on top of your business procedures while providing the best benefits.
Professional payroll companies can also help you with this process, so we advise looking for the right agency to partner with for your project.