Ensuring that your employees are properly paid for their time is essential for your childcare business to flourish. Whether you have one employee or hundreds, payroll requires careful calculations and attention to detail. Running accurate payroll each pay period is one of the most important tasks when running a business, and many small business owners opt for a manual payroll system over the use of software.

In this article, we’ll cover the basics of how to do payroll manually and some of the advantages and disadvantages of a manual payroll system.

What is manual payroll?

When a business has employees, payroll can be done manually or with software that helps automate the process. Payroll software can help you track employee hours, process payments, and calculate taxes correctly, among other features. Another option that businesses can consider is outsourcing payroll to a third-party accounting company to help you with the process. With manual payroll, all of the tasks associated with paying your employees are often done without the help of software that would automate them.

A business may choose to do manual payroll for many different reasons, but the most common one is cost. Payroll software can be expensive, especially for businesses with many employees. If your childcare business only has a few employees or is seeking to cut expenses, you may consider doing manual payroll. For childcare businesses, brightwheel payroll powered by Gusto, is an easy-to-use payroll solution, enabling you to save time and seamlessly run payroll from the same platform that you use to manage your center, staff, learning, and billing. Automate tax filings, easily review and edit timecards, and run payroll in a click.

How to run payroll manually

If you’re going to do manual payroll for your childcare business, accuracy is key. Double or triple-check all of your calculations, data, and information throughout the whole process. You can utilize a variety of simple calculators and tools to help you. Also, keep in mind that you’ll have to calculate payroll taxes manually as well. Follow these steps to manually run payroll for your childcare business:

Step 1: Obtain an employer identification number (EIN)

If you don’t have an employer identification number (EIN), apply for one from the Internal Revenue Service (IRS). This number is your business’ tax ID number, and it identifies your childcare program as a business entity.

Step 2: Open a business bank account

Use your EIN to open up a business bank account. This is the account where payroll payments will be sent from.

Step 3: Complete forms

Have every employee complete a W-4 tax form. This form documents tax filing status and personal allowances.

Step 4: Decide on a pay schedule

Choose your pay period schedule. First, decide whether you’ll be paying employees monthly, biweekly, or weekly, then select a consistent payout date after each pay period.

Step 5: Select payment type

Choose the type of payment you’ll use to pay your employees. You may pay via check, ACH transfer, wire transfer, direct deposit, or pay cards. Gather the required information from each employee to use your chosen payment method.

Step 6: Track employee hours

Before sending out your first payments, enforce a way to track employee hours so you can accurately pay each employee for all hours worked. You can opt for manual time tracking processes where staff members can note their start and end times on a sheet or log, or implement time tracking software to minimize errors. 

Step 7: Determine gross pay

Calculate each employee’s gross pay. For hourly employees, multiply how many hours they worked by their pay rate. For example, if an employee’s pay rate is $30 per hour, and they work 40 hours in one pay period, then their gross pay would be $1,200. For salaried employees, divide their annual salary by the number of pay periods in a year. For example, if an employee makes $60,000 per year and there are 52 pay periods per year, then their gross pay for each period would be $1,153.85.

Step 8: Determine net pay

Calculate each employee’s net pay, also known as their take-home pay. To find this number, you’ll need to calculate payroll taxes manually and determine any deductions, such as for health insurance, and then subtract those amounts from their gross pay.  

Step 9: Send payments

Submit payment to your employees through the payment method you choose. Verify that the amounts are correct before and after payments are sent, and maintain accurate payroll reports for your record keeping.

How to calculate payroll taxes manually

To ensure that your childcare business is paying the correct employment taxes, it’s important to calculate them correctly. Employees will have certain deductions and withholdings taken from their gross pay each pay period. Consult with the IRS Employer’s Tax Guide to gain a better understanding before you begin. Then, follow these steps to calculate your payroll taxes manually:

• If you offer non-tax-related deductions to your employees, such as a 401(k) or health insurance plan, deduct those payments first.
• Take a look at each employee’s Form W-4. These tell you which deductions to withhold from their pay. You can use the IRS Publication 15-T and your state’s income tax rate to determine the amounts.
• Instead of making a one-time payment for your employer taxes, the IRS has deposit requirements for how frequently they must be submitted. The size of your payroll determines whether your deposits must be submitted semiweekly or monthly. These payments must be submitted through an electronic funds transfer (EFT), preferably through the Electronic Federal Tax Payment System (EFTPS).
• Finally, file your state and federal employer tax return each quarter by completing Form 941. You can mail this form to your state’s IRS address or send it electronically via the federal e-file system. Keep copies of all tax documents in your files for your business reporting needs.

If you struggle with any of the above steps, receive any notices from the IRS, or discover a miscalculation from a previous tax year, you should consult an accountant or a tax professional. If necessary, they will help you retroactively resolve any discrepancies. 

Advantages of a manual payroll system

While digital solutions are paving the way toward streamlined operations in childcare businesses, there's a grounded simplicity and unique set of advantages offered by manual payroll systems. For childcare providers weighing their options, understanding these benefits is crucial.

Cost-effective

Manual payroll systems do not require any software or hardware purchases, making them cost-effective for smaller businesses on a tight budget. They also don't incur ongoing maintenance or security costs like digital solutions.

Simplicity and accessibility 

A manual payroll system is straightforward to implement, requiring minimal training and resources. It also offers easy access to records, making it convenient for small childcare businesses with fewer employees.

Flexibility 

A manual payroll system can also be more flexible and adaptable than an automated system. Creating your own manual payroll system means you can customize it to whatever you, your employees, or your business may need. 

While these advantages exist for manual payroll, there are also reasons why many childcare business owners opt for a payroll software like brightwheel over a manual process. The largest disadvantage is the complete reliance on yourself instead of a trusted software or trained, experienced professional. There is more room for human error without that second pair of eyes or computer checking your calculations, compliance, and accuracy. 

Manual payroll can be challenging and very time-consuming. As your business grows, it may become even more difficult to keep doing manual payroll for more and more employees. At a certain point, it may no longer be feasible to do manual payroll. 

Run manual payroll like an expert

Running payroll is one of the most important elements of running a business. Doing payroll manually is a big responsibility, but it’s absolutely doable with some research and attention to detail. Keep all of these tips in mind, and you’ll be an expert at running payroll manually in no time. 

Brightwheel is the complete solution for early education providers, enabling you to streamline your center’s operations and build a stand-out reputation. Brightwheel connects the most critical aspects of running your center—including sign in and out, parent communications, tuition billing, and licensing and compliance—in one easy-to-use tool, along with providing best-in-class customer support and coaching. Brightwheel is trusted by thousands of early education centers and millions of parents. Learn more at mybrightwheel.com.