Starting a small business comes with its fair share of challenges, but one of the most important responsibilities you’ll need to handle early on is managing payroll. Whether you’re hiring your first employee or expanding your team, understanding payroll for a small business is essential to staying compliant, building trust with your team, and laying a solid foundation for growth.

At Canal HR, we work with small businesses across Louisiana and beyond, helping them simplify and streamline payroll so they can focus on what matters—running their business.

Understanding Payroll Basics for Small Businesses

Payroll is more than just writing a check every other Friday. It’s a business system involving wages, tax withholdings, benefits deductions, and compliance with federal, state, and local laws. For small business owners, the stakes are high. One mistake can lead to costly penalties or unhappy employees.

To begin, you’ll need to understand the components that make up your payroll system. This includes gross pay, taxes, deductions (like healthcare or retirement), and net pay. You’ll also need to stay current with IRS depositing and reporting requirements, state labor laws (especially Louisiana-specific rules), and how often employees need to be paid.

Registering Your Small Business for Payroll

Before you can legally pay employees, you must ensure your business is properly registered. Start by applying for an Employer Identification Number (EIN) through the IRS. This functions as your business’s social security number for tax purposes. Next, you’ll need to register with the Louisiana Department of Revenue and Louisiana Workforce Commission. These agencies manage state income tax and unemployment insurance tax, respectively.

Having all your paperwork in order ensures that your payroll system is compliant and minimizes the chance of running into legal trouble down the line.

Classifying Workers Properly

One of the first big decisions in setting up payroll for a small business is determining how to classify your workers. Are they employees or independent contractors? Misclassification is a common issue that can lead to audits and fines. Employees are subject to tax withholdings, unemployment insurance, and workers’ comp coverage, while contractors are responsible for their own taxes. For Louisiana-based businesses, following the IRS’s rules and definitions can help guide this decision, or you can consult a PEO like Canal HR for expert advice.

Setting Up a Payroll Schedule

Next, decide how often you want to pay your employees. In Louisiana, most businesses opt for biweekly or semimonthly pay schedules, though weekly and monthly options are also available. Your choice will impact your cash flow, employee satisfaction, and administrative workload.

It’s also crucial to establish clear pay periods and stick to them. Consistency is not only expected by employees, but it’s also required by labor laws. Documenting your pay schedule in an employee handbook or onboarding documents helps everyone be on the same page.

Choosing a Payroll System

You can choose to handle payroll manually, use payroll software, or outsource to a payroll provider or PEO. While doing payroll by hand might seem cost-effective at first, it often becomes overwhelming as your team grows or as regulations change. It really only makes sense when doing payroll for a very small business and even then, you’ll likely want a plan to outgrow it.

Payroll software can simplify calculations, generate pay stubs, and file taxes. On the other hand, a PEO like Canal HR offers full-service payroll management, benefits administration, and compliance support—all under one roof. This is especially valuable for small business owners who want to ensure they’re doing things by the book without having to become HR experts overnight or hiring one.

Collecting Employee Documents

Once you’ve set up your system, you’ll need to collect key documents from every employee. This includes a completed W-4 for tax withholdings and an I-9 for employment eligibility. Louisiana also requires new hire reporting, so be sure to report every new employee to the state within 20 days of hire.

Store these documents securely, either digitally or in locked physical files, as you’ll need them for audits, insurance, or legal disputes. You’ll find the method that works best for you, but it comes down to being accurate and organized when it comes to payroll documentation.

Calculating and Withholding Payroll Taxes

One of the trickiest parts of payroll for a small business is tax withholding. You’ll need to calculate federal income tax, Social Security, Medicare, and potentially state and local taxes to stay on top of your payroll taxes. Louisiana has its own income tax brackets, so make sure you’re using the correct rates.

In addition to employee withholdings, you’ll also be responsible for employer contributions to Social Security, Medicare, federal unemployment tax (FUTA), and Louisiana unemployment insurance. Missing a deposit deadline or underpaying could result in penalties, so timely filing is essential.

Issuing Paychecks or Direct Deposit

Now that the math and filing is done, you are ready to pay your employees. Many small businesses use direct deposit for convenience and security. Others still prefer printed checks or pay cards. Whatever your method, ensure that pay is delivered on time and includes a clear breakdown of earnings, deductions, and taxes.

Your employees rely on their paychecks to pay their bills. That’s why getting payroll right is important to build trust with your employees and it shows professionalism. That’s why so many Louisiana business owners turn to Canal HR for reliable payroll support.

Filing Payroll Taxes and Reports

Each pay period, month, and quarter, you’ll need to file tax forms with both the IRS and state agencies. These include forms like 941 for federal taxes, 940 for unemployment, and Louisiana-specific forms for income tax withholding and unemployment contributions.

You’ll also need to distribute W-2s to employees and 1099s to contractors by January 31st each year. Keeping accurate records throughout the year makes this process much smoother, helping you out when the time comes.

Staying Compliant with Employment Laws

Payroll isn’t just about numbers, it’s also about legal compliance. Minimum wage laws, overtime rules, and leave policies all factor into how much your employees should be paid. Louisiana follows federal minimum wage standards, but any changes at the federal or state level must be reflected in your payroll system immediately.

Failing to stay compliant with employment laws can lead to penalties or even lawsuits. Outsourcing payroll helps small business owners navigate these regulations with ease, offering peace of mind and expert support.

Ready to Start Payroll for Your Small Business?

Canal HR is here to take the stress off your plate. With expert payroll services tailored for Louisiana businesses, we handle everything from tax filings to employee payments, accurately and on time. Let us manage your payroll so you can focus on growing your business.

Contact Canal HR today to learn how we can support your business with expert HR and payroll services.