Payroll management is part of the bread and butter monthly operations of virtually all businesses that employ workers. Payroll management can be one of the more stressful things that small business owners deal with regularly, though it doesn’t need to remain so. It can also be an area fraught with peril, as there are many fees and penalties which can be incurred if you make mistakes in payroll management. In fact, according to a study by Inc.com, about 40 percent of small businesses deal with penalties each year due to errors made in their payroll management!
Whatever type of business you run or industry you are in, payroll management is something you will want to get right. In this article, we will explore several tips which can help you to improve your small business payroll management.
1. Unify Your Pay Schedules
Generally speaking, it is more efficient and simpler to manage payroll when pay schedules are unified. If your business has some employees who are paid weekly, others bi-weekly, and still others monthly, that is a recipe for chaos. This could make mistakes more likely and will most likely only serve to increase the amount of time and stress associated with payroll management.
Consider making adjustments to your pay schedules such that everyone gets paid on a single unified schedule, perhaps bi-weekly. This way, all paychecks go out together, and you know that all employees will be accounted for on each payday.
There may be some pushback from employees when the changes are announced, but stable and predictable payouts tend to be better for everyone, so they will most likely be ok with the shift in schedule. Just be sure to give them plenty of advance notice, so they have time to plan accordingly before the change takes effect.
Another thing to consider is that every state has a minimum pay period, and you cannot exceed that limit. You can pay more frequently than the minimum, but not less often. As long as you are within that limit, you should be fine.
2. Unify Payroll & Accounting Systems
If you are using multiple separate systems to manage payroll, track employee hours, and other HR details, you may end up with information out of sync. This could lead to confusion and unnecessary, redundant data entry, which wastes time and, ultimately, money too. Consider switching to a single consolidated system for managing all payroll and related data. If you are unable to merge everything into one system, see if you can at least integrate them, so they talk to each other in real-time and share information. This way, you can prevent redundant manual data entry and inconsistent records.
3. Stay Current on Tax Laws
If you employ workers, it is your responsibility to stay aware of changes to federal and state tax law and make any required changes accordingly. If you fail to do this, you could end up incurring penalties or fees or having a run-in with the IRS. It is essential to keep your information and records up to date and properly stored, and to ensure you are in continuous compliance with current state and federal laws.
The following are some examples of things to keep track of:
- Reporting requirements
- Tax filing requirements
- Government deadlines
- Record-keeping requirements
This may seem overwhelming and frustrating to keep track of all this information. Usually, the best way to do so is to assign one person in the office who is good with tax law or other financial and legal issues to stay aware of these laws, checking for updates periodically and informing you of any changes.
You might also be able to subscribe to individual newsletters put out by state and federal agencies that inform businesses of these changes. If you have a designated researcher, they could be the one who signs up for and reads through these publications.
4. Keep Records Organized and Accessible
It is easy to become disorganized but allowing this to happen would be a mistake when it comes to payroll management and record keeping. A lack of organization is at the root of many of the problems encountered by small business owners.
You will need to keep track of a lot of sensitive employee information, such as social security numbers, account numbers, names, time cards, employment records, benefits information, and more. Having a sound system in place to store and organize all of this information is crucial.
If you use a dedicated payroll management software solution, it will most likely have a way of storing all this information and organizing it for you. Therefore, setting up a dedicated system should probably be your priority if you don’t have one already. It is best to digitize all this information because written records are more prone to mistakes and can be lost. However, if you do still have some paper records, be sure to use a single, well-structured organizational system that all employees who handle those records are aware of and implement with consistency.
5. Audit Yourself Regularly
If a governmental authority audits you, that could be an incredibly stressful situation. However, if you take the initiative and review yourself internally regularly, you will be prepared and catch any potential issues before they become major ones. During the audits, check through your payroll system for errors and omissions. Verify that your time cards are in order and that all the numbers check out. Look for inconsistencies or suspicious activity that could indicate a problem, and then deal with anything you find promptly and comprehensively.
6. Go Paperless
It is rather strange that we are still using paper-based payment and invoicing systems in the 21st century when these have been in use since the Roman Empire was around. If you have been using a paper-based payroll system, it is time to move into the present and make the transition to paperless, digital systems. This will save you a tremendous amount of time and money while reducing the probability of errors and streamlining your accounting process. Many employees prefer to be paid in a paperless system anyway. They may even thank you for the added convenience of not having to run errands to cash physical paychecks every couple of weeks.
7. Consider Outsourcing Payroll Management
After all, if you are feeling overwhelmed and would rather not deal with some of this stuff, you could consider simply outsourcing your payroll management to a qualified and affordable company. Many companies specialize in precisely this. If you would have needed to hire a dedicated employee to manage payroll, this could save you a lot on that cost. It may be considerably more affordable to outsource than to hire a dedicated employee to manage payroll.
If you have any tips of your own to offer that could help other small business owners with their payroll management strategy, feel free to share them here in the comments below.