Running business operations is never easy, but there is always one looming factor that you should keep in mind on a month-to-month basis – the payday. Your employees need to be paid, and this often means paying them monthly while following specific laws and regulations.

But how do you prepare for your first big payday? Paying informally with cash-in-hand might have been your go-to option, but as you begin to expand, it stops being a viable way of paying employees. Not only that, but it can be outright illegal in some situations, so moving onto a payroll is important.

How do you prepare, and what do you need to prepare for as a new business owner who is just about to reach payday? Here is everything you should know, and then some.

Create Paystubs

Pay stubs are a core part of any payment method, acting as both a finance record and a visual log of how much an employee has been paid. They are also known as payslips or the payroll and are a vital thing to include in your day-to-day business operations whenever you pay an employee.

When you pay somebody for their work in your business, you have a legal obligation to create a pay stub. This pay stub can be filed away for later and needs to contain a range of key information, from tax details and gross/net income to more niche data like a wage-based employee’s hours worked.

Depending on the state your business operates in, there can also be laws dictating how these stubs are used. Some states require you to present each employee with a physical stub unless they request a digital pay stub instead. Others do not require you to present them at all unless the employee asks – but you still need to make them.

You can always create pay stub documents in bulk using a pay stub generator, allowing you to feed data into a system and get usable pay stubs back. This can be an ideal solution for a smaller business that does not have money or space (or a need) for a dedicated accounting department.

Paystubs are important, so do not skimp on making them functional, readable, and easy to use as a finance record. The more effort you put into creating good pay stubs, the better they will serve you in the long term, especially as your business grows in scale and scope.

Tax

Tax is a very important part of managing your payroll, and it can be tricky to figure out how to begin at first. However, if you look up a few key guides and sources of information, you can probably simplify the entire process for yourself with some careful research.

Tax is one of those things that can seem a lot harder until you actually figure it out. Instead of worrying about how much tax you would need to calculate, look up relevant financial information and see what you need to include in your pay stubs. Once the basic template is there, the rest becomes easy.

If you are doing all of your accounting on your own, then do not be afraid to keep relying on spreadsheets and automatic calculations for your tax. Using automated systems to help can reduce the risk of human error and allow you to get consistent results each time, making it much harder to accidentally skip a step.

Tax is definitely confusing, but luckily, a lot of it will already be worked out for you. Most tax is in percentages and based on gross income, so you can rely on a simple calculator tool (in combination with a pay stub generator) to easily work out how much tax an employee has to contribute.

Hours Worked

Remember that not all employees are salaried. Employees who are paid by the hour (or more rarely, the day) often need to have the hours they worked officially logged so that they can review them (and dispute them if they feel like they have worked longer). This also helps work out their wages.

For example, an employee who works for an hourly wage might clock themselves in and out or be clocked in by another person. Keeping track of these records in pay stubs is important since it is often the most direct way that you will be able to work out how much you should pay them.

This is also vital for pay disputes. If an employee complains that they were not paid enough, then having a log of how much they worked (and therefore earned) can be important. They can still dispute this, too, if it was logged incorrectly, but you need the record there to solve the problem.

This might also have other uses. Overtime is a good example since overtime is often an hourly factor, and there are specific limits to how many hours can be involved. Sick pay and maternity/paternity leave are measured in days, but the general idea is more or less the same.

Clarity

It is important to keep everything as clear as possible with your employees, even if that means using an HR manager to help spread information or keep track of complaints. There is always a chance that your first payday could have a few hiccups, and you need to make sure that the employees understand that.

This is especially true for first-time managers with a company that has only just opened. If you are struggling, communicate that with an employee that has accounting experience or understands your issue, or go for outside help if you are completely stuck.

This goes for things like the pay stub, too. The clearer you can make each point or field on the stub (including avoiding acronyms that are not necessary or your own shorthand terms), the easier it becomes for your employees to understand how much they are being paid each month.

If you over-complicate things, then any outstanding problem just becomes worse, so do not stress too much about how you manage your payroll. Even an inefficient system can work, and you can always tweak and improve the payroll as you get more and more employees.

There is no perfect payment system, but the more you try to improve it, the better your entire payroll will become.