Do Bookkeepers Do Payroll? Services and Responsibilities

Bookkeeping records the flow of money in and out of an organization. Businesses frequently question if managing employee payroll falls within a bookkeeper’s scope. This query arises because payroll involves detailed calculations and adherence to various regulations, making it a specialized area. Understanding the distinct, yet often overlapping, functions of bookkeeping and payroll is important for any business owner.

What Bookkeepers Do

Bookkeepers maintain accurate daily financial records for a business. Their duties include recording financial transactions, such as sales, purchases, and expenses, into general ledgers. They manage accounts payable, ensuring bills are paid on time, and handle accounts receivable, tracking customer invoices and payments. Bookkeepers also perform bank reconciliations, cross-referencing bank statements with internal records to confirm accuracy. This record-keeping provides a clear picture of a company’s financial health, often used to prepare basic financial statements.

Payroll Services Provided by Bookkeepers

Many bookkeepers extend their services to include payroll processing. These services typically involve calculating gross wages for hourly and salaried employees, including overtime pay. Bookkeepers manage various deductions, such as mandatory federal and state income taxes, as well as voluntary deductions for health insurance or retirement contributions. They facilitate payment to employees through direct deposits or by preparing physical checks, and track paid time off such as vacation and sick leave. Bookkeepers also generate payroll reports, with the extent of services varying from basic processing to comprehensive management including tax filings.

Understanding Payroll Responsibilities

Payroll processing involves significant responsibilities beyond simply issuing paychecks. Employers must comply with federal, state, and local tax requirements, which include withholding specific amounts from employee wages. Federal taxes include Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, and federal income tax. For FICA, employers and employees each contribute 6.2% for Social Security (up to an annual wage cap) and 1.45% for Medicare.

Employers are also responsible for Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) taxes, which solely fund unemployment benefits and are paid by the employer. FUTA is 6.0% on the first $7,000 of each employee’s wages annually, though credits for SUTA can reduce the effective rate. Accurate record-keeping of all wages, taxes withheld, and deductions is required for at least four years by the IRS for compliance and documentation.

Information Needed for Payroll Processing

To process payroll, specific information must be gathered for each employee and the business. Businesses require an Employer Identification Number (EIN) from the IRS for tax reporting. For each employee, data includes their full name, address, Social Security number, and a completed Form W-4 to determine federal income tax withholding.

Wage rates, whether hourly or salaried, along with records of hours worked, are fundamental for calculating gross pay. Authorization for any voluntary deductions, such as health insurance or retirement plan contributions, must be on file. Bank account information is necessary for employees opting for direct deposit.

Steps for Processing Payroll

Once information is compiled, payroll processing follows a sequence of actions. The initial step involves inputting employee data, including hours worked and wage rates, into the payroll system. This data is then used to calculate each employee’s gross pay. Subsequently, all mandatory and voluntary deductions are computed and subtracted from the gross pay to arrive at the net pay.

After calculations are complete, payments are generated, typically through direct deposit into employee bank accounts or by printing paper checks. Payroll reports are prepared, detailing earnings, deductions, and tax liabilities for the pay period. Finally, employers are responsible for remitting withheld taxes to the appropriate federal and state agencies and filing required tax forms, such as quarterly Form 941.