Why Tax Season Is the Perfect Time to Start Payroll Planning

Tax season can be a taxing time for any entrepreneur and small business owner. Here are six ways to maximize your time this season.

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Author By the Roll by ADP Editorial Team on March 06, 2023
Reading Time 5 min read

Tax season can be, well, a taxing time for any entrepreneur and small business owner. Thankfully automatic tax filing and many other time-saving features are at the heart of Roll. But if you're using another payroll provider, don't waste the effort you'll put in this year! Instead, make the most of it by looking ahead to your 2024 payroll planning as you look back on last year's expenses.

Here are six ways to maximize your time with the tax collector this season.

Take inventory to ensure all W-4 and W-9 forms are properly updated and filed

One of the truths of entrepreneurship is that your paperwork burden grows as your small business becomes bigger. You'll want to get familiar with all the common filings, and none more so than the W-4 for employees and the W-9 for independent contractors. Odds are you'll need to know both. As recently as 2019, small businesses were hiring independent contractors at a faster rate than they were hiring full-time workers.

While these forms are similar in spirit, they have important functional differences. The W-9 specifies a contractor's Tax ID number for the purposes of reporting earnings to the IRS. (Those earnings are compiled and reported annually on the 1099 form.) The W-4 allows employees to choose their amount of tax withholding. Changes require a new W-4.

Take inventory of all the forms filed by workers, both the full-time staff and any contractors. Has everyone completed the proper forms? Is anyone planning to make changes to their withholding in the year ahead? Staying up to date can ensure you're running accurate payroll and keep you on track for year-end tax filings.

Update health insurance records for all employees

Do you offer employees health benefits? A growing number of small businesses do. As of 2021, roughly 25% of companies with 10 or fewer employees provided staff some form of health insurance while about 32% of businesses of 50 or fewer employees also offered coverage. Don't be afraid to join them.

Only those businesses with 50 or more employees are required to file form 1095-C to the IRS. What's form 1095-C? Think of it like a W-9 or W-4 but for health insurance: it describes the coverage offered and the months in which the employee was offered benefits.

Track this data even if you aren't required to. At some point, if you're successful, you'll want more than 50 employees helping out — and you don't want to be catching up your payroll and benefits process at that point. Get ahead and stay ahead.

Review compensation strategy

How often do you review compensation? An ad-hoc approach probably isn't going to work, especially as your small business grows. Tax season is a great time to at least set a plan. But first, take stock of where you are:

  • Who's been given increases?

  • When was the last round of increases?

  • What's the variance between your highest- and lowest-paid employees? Do results merit the difference?

These are crucial questions that can help you plan. Set a budget for increases and take the time to review each employee's case for an increase. Then, mark the calendar for delivering your decisions. Rinse and repeat next year.

Making tax season your annual payroll planning time lets employees know when they can expect to hear decisions on their compensation. Your commitment to planning helps them plan. The fewer surprises there are between you and your workforce, the easier it should be to run and grow your small business.

Issue spot bonuses where warranted

While it's important to set up an annual compensation review, payroll planning should never be a one-time event. Rewarding great work when it happens can be a great way to keep employees engaged, so they put in the extra effort to keep your small business growing.

Start the habit by using your annual compensation review to identify and reward those employees who've gone and above and beyond in the prior year. Bonuses don't always have to be large, ut they should be personal. Deliver the news either in person if possible or with a detailed note. Be very specific in your reasons for issuing the bonuses and make clear how grateful you are for the extra work.

If you've hired the right sort of staff — people who genuinely want to work with you — the sentiment will matter just as much as the money, and possibly more. Roll makes it easy to reward workers. With just a few taps, you can send someone a rapid raise or instant bonus to thank them for a job well done!

Make a headcount plan

You're no doubt used to doing many jobs yourself as a small business entrepreneur. Tax season is a great time to reflect and think about headcount as part of your payroll planning. Let three questions guide your thinking about whether to hire, and for what positions:

  • Where are you spending time that is actively causing you to miss out on work that could earn your business more money?

  • What extra tasks are proving so difficult that it's leading you to feel burned out?

  • In what areas of the business are you making costly mistakes that might be solved by hiring an expert?

ldn't be the goal when hiring for your business. The goal is ease pain and maximize the dollars you're already spending.

Assess your current payroll provider

Finally, let's be honest: payroll can be time-consuming. It's the sort of work that's better when it's automated so you don't have to remember important deadlines. Consider the dozens of situations where it might be easier for an employee to self-serve, like changing tax withholding with a new W-4. Would you rather do that manually, or have employees update their choices in an app and have the system do the rest?

Switch to Roll this payroll planning season and you'll get all the tools during to keep employees paid and tax forms filed. You'll also get full access to historical payroll data to spot trends and stay compliant with the IRS all year long — not just during tax season.

Small Business Payroll • Small Business • Tax Filing • Payroll
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