Almost two-thirds of managers’ daily tasks might be automated by 2025. That will be good news in a few years; but for now, it suggests that decision-makers are handling too many transactional jobs. This time-consuming, manual work removes them from more strategic, people-related tasks that could grow their business and culture.
Time spent on managing payroll adds up, whether it’s 21 days a year on payroll or 1.6 hours a week to manage benefits. Small business owners who handle these tasks must learn state-by-state labor laws, keep up with changes, chase down missing or erroneous information on time cards, and painstakingly double-check their math and data entry.
Forty percent of small business owners believe payroll and taxes are the worst part of owning their business.
With more time to plan, strategize, and engage with people, these leaders can help advance higher-order business goals. But first, they’ll need to get out from under the mountain of paperwork.
Here are our top 10 payroll tips to make small business leaders’ lives easier, and payday much sweeter.
1. Put a Payroll Policy in Place
A payroll policy serves as a single source of truth that payroll administrators can follow, and helps provide the correct set of guidelines your business needs to accomplish payroll tasks accurately and efficiently. A well-thought-out payroll policy includes the following, and ensures all employees have a clear understanding of the payroll system you put in place:
- An outline of the payroll process
- Employee classification specifications
- Determining factors for salaries and wages
- Reporting obligations for employees
- Instructions and procedures for resolving payroll mistakes
- Levels of earnable vacation time (earnings that are used to determine vacation pay)
- Guidelines for how to calculate salaries and promotions
*Note: This is not an exhaustive list of what to include in a payroll policy.
Not having a payroll policy in place can result in disorganized, inefficient processes, and ultimately lead to costly payroll mistakes.
According to IRS estimates, one-third of firms make a payroll error each year, resulting in fines of around $7 billion in 2021.
2. Set a Payroll Budget
Payroll is a significant expense that is generally greater than most employers expect. It’s critical that you balance payroll expenses against general business expenses to ensure that you always have the proper funds needed to compensate employees.
It’s important to note that employers are legally responsible for certain employment taxes, such as Social Security and Medicare. For example, employers are legally obligated to match the Social Security and Medicare deductions made from an employee’s compensation, which amounts to 7.65% of gross pay, in addition to the employee’s salary or an hourly wage. Payroll taxes can vary by state, so it’s critical to consider this when budgeting. Read more about these requirements from the IRS.
To ensure that the spending won’t have a detrimental impact on the company’s finances, it can be useful to budget by calculating overall payroll costs as a proportion of revenue.
If you’re having trouble with these calculations, click here for a library of financial calculators to help with the process.
3. Ensure Accurate Employee Classifications
It’s a common misconception: employees vs. independent contractors. And it is absolutely crucial that you as a business owner properly assess employee classifications, as not doing so causes state and federal agencies to suffer severe repercussions. Misclassification causes the state and federal governments to be deprived of tax revenue that is rightfully theirs, including income, Social Security, Medicare, and unemployment taxes, which are required to provide public services and benefits like unemployment insurance.
4. Categorize Employees as Hourly or Salaried
Once you’ve accurately classified workers as employees, it’s time to categorize them even further by determining whether they’re hourly, or salaried. To make things easier, here’s the difference from a legal compliance perspective:
- Hourly employees are entitled to protection under the Fair Labor Standards Act (FLSA) and must get overtime pay if they work more than 40 hours per week.
- Salaried employees may not be subject to FLSA overtime regulations.
The biggest determining factor for hourly vs. salaried employees is FLSA exempt vs. non-exempt classifications. This DOL fact sheet can help you determine your employee’s exemption status.
5. Develop & Maintain a Payroll Calendar
It goes without saying that keeping track of your payroll schedule and enforcing it will produce a time-structured workflow, which in turn will result in a more conducive working environment for payroll success. Maintaining a payroll calendar helps you handle unforeseen events, minimizes errors, and enhances employee satisfaction with the service provided.
Whether your pay frequency is weekly, or bi-weekly, having a visual calendar can help you better define the stages of the ongoing monthly payroll process. It can also come in handy as it relates to holiday pay.
6. Maintain Proper Compliance
Payroll comes with a lot of legal compliance complexities. You must strictly abide by all federal, state, and local laws that set forth the terms and conditions of employee compensation.
It’s important to keep the agencies that regulate payroll laws front and center – the Internal Revenue Service (IRS) and the Department of Labor (DOL) and have a basic understanding of payroll laws and regulations.
To name a few:
- Fair Labor Standards Act (FLSA)
- Federal Insurance Contributions Acts (FICA)
- Federal Unemployment Tax Act (FUTA)
- Equal Pay Act (EPA)
- Workers’ Compensation
Other pieces to keep in mind when ensuring compliance are making sure you classify workers accurately, carefully entering and monitoring employee data, keeping records, and updating files regularly.
But with how complex payroll and HR compliance is, consulting with legal experts goes a long way.
7. Outsource Payroll
Payroll administration is time-consuming and challenging to learn. Business owners spend almost two hours each pay period calculating payroll taxes and another three hours allocating funds and filing those taxes. Processing payroll manually results in more errors and drains time from core tasks.
Twenty-five percent of employees have experienced paycheck errors. Mistakes frustrate employees and can lead to fines, tax issues, and high turnover.
Handling payroll in-house comes with so many risks and frustrations that 65% of small business owners want to outsource the job, even though most believe they are in the best position to handle the task. It’s a common misconception that only big companies benefit from outsourcing payroll. In reality, small business owners have plenty to gain by focusing on other core business concerns. Those benefits include:
- Efficiency: Business owners get bogged down in learning rules, processes, and payroll software. Outsourcing eliminates these challenges, so they have more time to focus on core tasks.
- Easier adherence to laws and regulations: Payroll experts know state law and federal regulations. Most importantly, they keep abreast of updates that could affect compliance.
- Time and cost savings: Outsourcing experts handle payroll tasks with greater speed for added efficiencies, providing a high return on investment (ROI) to small businesses.
8. Provide Training on Payroll Process
Whether you’re doing payroll manually or using payroll software, ensure you’re providing proper training to any employee that will need to support payroll efforts. Training doesn’t have to require a lot of time and effort, either. Your payroll policy can do most of the work.
Here are a few ways you can implement payroll training in your business:
- Provide payroll policy and related payroll documents and make them easily accessible.
- Record the payroll process and share it with your employees.
- Make copies of your payroll policy for employees to hold on to.
- Implement quizzes and interactive learning.
If you outsource your payroll, some providers have in-platform training tools already available to you and your employees to get everyone on board seamlessly.
9. Shift your focus to people first
Employees have a personal relationship with payroll. They often link their worth to their paycheck and struggle financially when companies can’t pay correctly or on time. They lose the ability to pursue passions and hobbies. In summary, payroll errors can be costly to morale.
Shift the focus away from transactional tasks and toward relationships. In payroll, that means making sure your employees get their direct deposit or paychecks accurately and on time, so they can thrive in their personal lives and be motivated and productive at work.
10. Eliminate overcomplicated payroll systems and integrations
There’s no reason to add a new tool for every new business function. The cost of maintaining and upgrading technology is high, and training new employees on new systems adds inefficiencies without adding value. It’s about keeping operations simple and saving resources, letting employees expand into new areas from a single, streamlined hub.
In today’s business environment, small businesses increasingly seek technology that helps them be more efficient without complicating their work. Forty-two percent of owners look for time savings when adding to their tech stacks.
A centralized business portal helps managers gain expertise on their platform, makes reporting easy, and reigns in extra administration, keeping data accessible across systems. In other words, it’s a simple hack that delivers significant value.
Reclaim Your Time with a Payroll Provider
Scaling requires small business owners to use payroll management tips to make sure more hours in their workday stay within their control. Otherwise, administrative tasks can quickly drain their ability to drive business decisions and improve culture.
Say goodbye to manual payroll, and time tracking, and hello to dedicating yourself to the growth of your business, full-time. If payroll management is taking over your business day, download our e-book for key elements that make payroll and people easier to manage.
PrimePay at Your Service
As a leading payroll service provider, PrimePay can partner with you to offer support throughout the entire employee lifecycle. Learn more about how PrimePay can help you streamline human resources (HR) processes, support tax obligations, and make managing your payroll calendar as easy as 1-2-3.
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