The small business owners' guide to payroll reports
Payroll reports are an important part of operating any business. Not only can federal payroll reports help you manage your tax liabilities, but internal payroll reports can help you better manage your workforce and other important assets.
Some payroll reports can be used in-house to evaluate your company’s performance. Others, however, will need to be submitted to the federal, state, and local governments on a routine basis. This guide will help you learn more about the types of payroll reports your business can generate and which reports you’ll use to file each tax year.
What is a payroll report?
First, a payroll report is a document that you’ll use to notify the federal and local governing bodies about your employment tax liabilities. Payroll reports will include data like:
- Wages paid
- Federal income taxes withheld
- Medicare taxes
- Social Security tax
- Reported tips
- Unemployment taxes
- Additional taxes withheld
However, for many small businesses, this is only a starting point. Payroll reports can also include employee data, such as:
- Hours worked
- Overtime hours
- Pay rate
- Attendance and absenteeism
In other words, payroll reports can ensure you satisfy your payroll tax liability, but these documents can also be used in-house to gauge the effectiveness of your workforce and optimize accordingly.
Why are payroll reports important?
Keeping accurate, up-to-date payroll records is important for your business. Producing standard payroll reports will allow you to do the following:
1. Evaluate employee engagement
A payroll report could indicate that a department has a high level of employee turnover. This might lead you to find ways to keep your employees engaged and happy, and it also helps you avoid the need to refill crucial positions throughout the year.
2. Compensate your workers
Primarily, your reports can help you ensure that the wages paid to your workers justly compensate them for the work that they’re performing. It will also keep you on top of metrics like retirement plan contributions, a benefit that may keep your employees engaged and focused.
But you can also use your payroll system for other forms of employee recognition. Recognizing birthdays or other important milestones can go a long way toward improving team morale and creating a better workplace culture.
3. Optimize your business
The right reports can also help you optimize your business, giving you insight into measurements and statistics like labor costs, employee turnover, or seasonal trends in employee performance. This can aid you in making future staffing decisions and ensure that your company has the right personnel in the right positions.
4. Maintain proper cash flow
For your business to thrive, you need enough working capital to cover your employee wages and other labor costs. Staying on top of your payroll will ensure that your workers, who comprise your greatest workplace asset, are covered.
5. Manage your tax liabilities
Perhaps most importantly, staying on top of your payroll will also ensure that you stay on top of your payroll taxes for the year. This way, you’ll be able to meet all of your deadlines for the tax year.
That helps you as well as your employees. The data you provide through your payroll tax reports (including Form W-2) will help your workers complete their federal income tax returns and submit income tax filings for the state.
Types of payroll reports
There are many types of payroll reports, not all of which are used to report information to the federal government. Common payroll reports include:
An employee summary is a concise report of each employee’s key data. This includes the basics like name, contact information, hire date, and tax information. You’ll generally create these files when you hire new staff and update them periodically to maintain accurate records.
An error report will quickly identify unpaid employees or missed deductions for a given pay period. In most cases, your payroll software can generate an error report to surface any immediate payroll errors.
Paid time off (PTO) reports
In most companies, workers have a set number of paid time off (PTO) hours that they can use each year. PTO reports can help you keep track of the number of hours your workers have available, and they can also help you forecast seasons in which a sizable percentage of your workforce will be absent.
Payroll summary reports
Payroll administrators can create summary reports based on a particular pay period. These reports can include payroll data for individual employees, but they can also summarize an entire organization. A payroll summary report will usually include information that includes gross and net wages, tax withholdings, and other deductions.
Payroll detail reports
A payroll detail report gives line-by-line detail of every compensation made to an individual employee or to an entire workforce. These types of reports are better for surfacing specific issues or finding sources of inefficiency.
Employees can voluntarily contribute to a retirement plan, such as a 401(k) or a 403(b). Some companies will even match these contributions. All retirement plan contributions are included in this type of report, which can be segmented based on employee and employer contributions.
Workers’ compensation report
Some employers choose to integrate workers’ compensation insurance into their existing payroll. If so, these reports can be used to calculate your insurance premium. For example, insurance rates can change based on the number of employees on your payroll as well as the type of coverage you need.
Payroll service charges
Companies that outsource their payroll needs to a payroll provider can display their invoices through this type of payroll report. This way, companies will have a clearer picture of the value gained from payroll providers and can ensure that they stay up to date with any outstanding invoices.
Types of payroll report forms
Certain payroll reports will need to be filed with federal and local governments on at least an annual basis. In many cases, however, business owners will need to submit payroll reports on a quarterly basis in accordance with federal and local laws.
Federal payroll reports include documents such as Form 941 and Form W-2. These forms ensure that your business, as well as your employees, comply with existing tax laws and submit the necessary tax information to file their state and federal income taxes.
Here are the types of federal, state, and local payroll reports that you’ll need to regularly file:
Form 940: Employer’s annual federal unemployment tax return (FUTA)
To comply with the Federal Unemployment Tax Act (FUTA), you’ll need to file Form 940 to declare and pay your unemployment taxes. These taxes can be as high as 6% on the first $7,000 of employee wages, though you may pay less if you’re also paying state unemployment taxes.
Form 941: Employer’s quarterly federal tax return
Many businesses are required to file their federal payroll taxes quarterly. These payroll reports will include the following information:
- Employee wages
- Federal income tax withholdings from employee wages
- Medicare and Social Security taxes (employee portion)
- Medicare and Social Security taxes (employer portion)
Again, Form 941 is standard, which means you’ll be making a quarterly report that contains the above information regarding employee compensation.
Form 944: Employer’s annual federal tax return
Some businesses may elect to file annual payroll reports instead of the quarterly payroll reports that use Form 941. To do so, you’ll first need permission from the federal government. You’ll also need to keep careful records to ensure you report all of your employee information clearly and accurately.
Form W-2: Wage and tax statement
Wage and tax statements are actually for the employees to file their own income taxes. However, employers are required to complete this form and distribute it to each employee by January 31 of the following year. Form W-2 will include each employee’s annual gross wages, deductions, and benefits. Employers must also file a copy of Form W-2 with the federal, state, and local governments and should keep a file for their own records.
Form W-3: Transmittal of wage and tax statements
Business owners must also submit Form W-3 to the Social Security Administration. This form is a summary of all of your employee wage and tax statements, which means you’ll only submit one Form W-3 for your entire workforce.
State payroll reports
Depending on where your business is located, you’ll also be responsible for state payroll reports. However, the exact nature of these payroll reports depends on your local state government, and deadlines and requirements can vary quite a bit.
You can generally expect most states to require state payroll reports on a quarterly basis. This is especially the case for information like income and unemployment tax. However, check with your individual state government to determine your exact requirements and filing deadlines.
Local payroll reports
Your business may also have to file local payroll reports depending on the locality of your company. Typically, local payroll taxes will be due on a quarterly basis, just like your federal forms, though your local officials may have specific deadlines that deviate from those of your other payroll reports.
Tips on creating payroll reports
It’s important to stay current when it comes to creating (and filing) payroll reports for your business. Here are some tips that you can use to stay up to date with your reporting.
Research your local laws
First, research your local laws to determine how to handle employee taxes. Even though state and federal taxes will both be filed every quarter, it’s possible that your local requirements will have different deadlines.
Automate your core processes
It also helps to automate as many of your administrative processes as possible. That includes payroll software, but it can also include other business tools that help you send invoices, receive online payments, and produce other financial reports to help you stay on top of your business. This also makes it easier to track direct deposit payments to your workers or keep electronic records of your tax withholdings.
Consider the needs of your business
Every business is different. Some companies will already have a lot of paperwork and financial reports to process regularly. If that’s the case, you might consider how payroll software or other electronic tools can help you. Or you can always consider shifting your quarterly reports to annual reports to reduce your administrative burdens.
The right tools for the right business
Invoice2go has helped countless small business owners optimize their core processes, ranging from sending invoices to getting customized financial reports. Sign up today and you’ll receive a 30-day free trial so that you can see how these innovative tools can make an impact on your business.
Frequently asked questions
For specific tax advice, see your accountant or another financial professional. Here are general answers to common questions about payroll reporting.
Basically, you’ll make at least one payroll report each year. Annual payroll reports include Form 940, Form 944, Form W-2, and Form W-3.
However, you’ll file the following reports every quarter:
- Form 941
- State payroll reports
- Local payroll reports
Ideally, the deadlines for these federal and local payroll reports would be identical, but you’ll need to check with your state and local agencies to ensure you stay in compliance.
Internal reports, of course, can be completed at any time. However, a weekly payroll report might be overkill and may even lead to micromanaging your employees. Evaluating your internal reports on a monthly or quarterly basis will ensure you have good cash flow without overwhelming you with data.
According to the Fair Labor Standards Act (FLSA), payroll reports must be kept on file for at least three years. Some businesses may want to maintain this data for longer periods, as it may be needed for business loans and securing outside investment
Independent contractors will not be included in your payroll reports, which are reserved for employees only. Instead, you’ll use Form 1099-NEC to report wages paid to independent contractors, and you’ll file these documents at the end of each tax year.