Payroll is the most confusing, tedious and time consuming activity for most of the small businesses and it is also the most necessary one! Problems can tie up crucial company resources, lower employee morale and run even the most successful business into the ground.
We have listed few payroll tips for small businesses that will help to make payroll easier, more accurate and less of a hassle:
Register for an Employer Identification Number (EIN):
Before putting your employee’s on a payroll, you need to get an Employer Identification Number. Just like Social Security Number (SSN) is to you as an individual, your EIN is a way to identify your small business for tax purposes. Most but not all small businesses require EIN before they can file manage payroll taxes, apply for a license or even open a bank account. Depending on where your business is based, you may need to get a state level EIN on top of your federal EIN.
Decide on Pay Schedule and Salary status:
As a small business owner, pay frequency and wage status are two of the key decisions you have to make.
Pay Frequency also known as pay schedule, is when you pay your employees and how often they get paid. Check federal and state laws to ensure that you’re meeting your area’s minimum payday laws. The most common payday includes weekly, biweekly and monthly payments. No matter what you decide, just keep paying consistently and on time.
Salary Status is how wages are computed. You can choose between paying an hourly rate or paying a salary. The right salary status is based on the individual needs of your small business as well as the employee’s position.
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Understand and abide by wage laws:
No matter what, your business and company must be compliant with both federal and state laws. This means that someone in your business must understand what your financial and legal obligations are as an employer. Make sure that you’re paying right local and state tax, right income tax per employee, right employment taxes/ Federal Insurance Contributions Act (FICA) taxes. Double check your payroll process- to ensure that every employee gets paid accurately and on schedule. Monitor your payroll tax deposits to ensure they keep a regular schedule based on your tax liability.
Set up and Manage Payroll system:
A payroll system is a system that helps you calculate and manage your employees paychecks. You have three options:
Some small businesses choose to do payroll by themselves, just to save cost. However, manual payroll is the most tedious, time-consuming and prone to errors.
If you have cash to spare, you can hire someone else, meaning a third-party to do payroll for you. They will handle everything from processing paychecks to handling payroll taxes, employment taxes, tax deposits etc.
Manage Payroll software is the best of all the above. It is cost effective and provides accuracy, convenience of outsourcing and saves a lot of time. Software provides a lot of features such as storing information to calculate payroll tax and beyond. When choosing a payroll system, it’s vital to weigh several factors before making a decision.
How much money are you willing to spend on your payroll system? If your budget is too tight then, outsourcing payroll can be rolled out. Always keep in mind that your time is valuable, it might be cost-effective in the long run to spend a little more in your payroll.
Do you have an HR or accounting background? How accurate are you in your payroll management slips and accuracy? If your answer is not likely, then you may want to outsource your payroll or let a professional payroll software do it for you.
Number of Employees:
Payroll is a lot easier for businesses with only a few employees. If doing payroll manually takes you a couple of hours a week, then this means your system is working for you. The bigger and more complex your company, the more you will need outside help.
Outline your payroll policy and processes:
Before running payroll, it is vital to establish your own payroll policy. This ensures that everyone from your management to HR to your employees are on the same page about when the payroll period is, how payroll works, how benefits such as leave overtime, etc are paid and how much they can expect to take home.
Use a time tracking system:
A time tracking system is a great way to manage your employees productivity level and calculate their wages especially when you’re paying hourly rates. It is vital to use a time tracking system which is easy to use and difficult to manipulate. There are many different timesheet solutions, there are systems that integrate right into your payroll system for even more accurate information across the board.
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Keep track of your cash flow:
It is every business concern: not paying enough cash to their employees. If you’re regularly short during payroll period, taking a look at your cash flow can help you identify the root of the issue. Monitoring your cash flow will help you spot potential payroll problems such as overstaffing and overpaying. During financially stressful periods, try to delay a vendor payment or collect outstanding customer payments before resorting to more extreme cash flow management tactics like downsizing or delaying wages.
Invest in a payroll Manager/ Point Person:
Payroll can be a complicated task. Especially when it comes to medium sized to larger companies , it can be daunting. No matter these companies opt to hire professionals for payroll or better outsource to a payroll service provider. It’s best to invest in someone who can do payroll faster and better, instead of spending hours on doing payroll. You can then better focus on other core activities of the business. If full time payroll is not feasible for you, then consider hiring a freelancer or simply delegating the task to one of your most skilled and trusted employees.
Maintain Employee and Payroll Records:
Both state and federal government have laws regarding storing and retaining payroll records, just in case government agencies need to access that information. For active employees, you cannot dispose of time cards for two years and any payroll information regarding paid wages for at least three years. There are also laws pertaining to the disposal of payroll records after termination.
For most of the small business owners, manage payroll is a difficult job. But with the above handy tips, payroll will be a lot easier, accurate and more streamlined than ever before.