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Blog: Minimizing Financial Clutter

Every business has employees. Every employee has paperwork and/or electronic files associated with him or her.  Even if you own your own sole proprietorship business, you need to keep some employee files for yourself.
Start by separating the documents related to each of your employees into categories:
         Employment documents.  These are the papers your employees filled out when they were hired, or when they changed their withholding allowances.  At a minimum, each employee's file should contain his or her W-4 and I-9 forms (for employees) or his or her 1099 form (for independent contractors).  If your state has income tax withholding forms or other "new hire" employment forms, those completed forms will also go into each employee's employment documents folder.  Whenever an employee needs to update his or her employment forms, add those forms to the employee's folder.  Also keep the employee's resume or job application in this folder.  (If you are a sole proprietor and don't pay yourself a salary, you do not need to create an employment documents file.)
         Other personnel records.   Keep all copies of all correspondence to and from your employees in their personnel file.  This is also the place to keep letters from customers about the employee's performance and "notes to self" about the employee's performance during the year.  These records will be invaluable when it comes time for you to do performance reviews!  Additional personnel records might include records of continuing education classes taken.  If you are the sole proprietor, keep your own resume, customer testimonials, and notes of your own accomplishments in your personnel file.
         Pay records.  I can think of 4 people off-hand who want you to keep good records of how much you pay your employees and the amounts you withhold from them for taxes and voluntary withholdings:
1.       Your employee.   You need to establish a method of keeping track of the time your employees work, their paid time-off, and their billable hours.  Your employee will want to be able to make sure that his or her paycheck is accurate. 
2.       You, the business owner.  I can think of fewer things that are a bigger hassle than payday arriving without having good records of my employees' time.  It is a real pain to have to go back and try to recreate records that are wrong or non-existent.  If your employees have billable time, it becomes even more critical to have a good process for tracking their time.
3.       Your customers.  You need to be able to prove that the amount you are billing your clients is based on actual time your employees spent on their project.  You don't want to mess this up.
4.       Your friendly IRS agent.  Want to get in big trouble really fast?  Don't keep good records of payments to your employees.  Don't submit your payroll taxes on time.  Heck, don't even withhold them at all!  Seriously, you will be in big trouble if you don't comply with the laws regarding payroll.  If you trust yourself to withhold taxes and file your payroll tax returns on-time, use payroll software such as QuickBooks® to make sure you're doing it properly.  If you don't want the hassle, use a payroll service such as ADP or Paychex even if you are the only employee.  It is well worth the small financial cost.
Your Homework for This Week:
         Review your company's employee records practices.  If you had to explain them to someone, could you do so? 
         Set up or organize your personnel files.   
         Make sure you are properly withholding and paying payroll taxes.  It will be worth the investment of your time.

posted on: 11/8/2009 11:30:00 AM by Katherine Trezise
category: Finances

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Minimizing Financial Clutter

by Katherine Trezise

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About Katherine:

Katherine Trezise is president of Absolutely Organized, based in Baltimore, MD. She is president-elect of the National Study Group on Chronic Disorganization. Katherine holds a masters degree in business administration, is a Certified Professional Organizer® and a Certified Professional Organizer in Chronic Disorganization®. Absolutely Organized specializes in helping people organize their homes, paperwork and financial records to make room in their lives for the things, people and activities that are most important to them.

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