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Most small business owners have a hard time when it comes to their payroll because it is a tedious, confusing, and time-consuming activity. This is also one of the most important aspects of the business. Problems can lead to lower morale, the tying up of crucial resources, and even can lead to the fall of a business.
Below are nine tips that will make it easier for you when dealing with payroll.
1. Registering for an Employer Identification Number
But you put an employee on the payroll make sure you have the Employer Identification Number (EIN). This is the same as a person having a Social Security Number (SSN). EIN is needed when identifying a small business for tax purposes.
Most small business owners have to get EIN before applying for the licenses, open a bank account, and file payroll taxes. But this is not the case for all small businesses. Depending on where the business is based, you might have to get a state-level EIN on top of the federal EIN.
2. Deciding on Pay Schedule and Salary Status
Wage status and pay frequency are two of the key factors to consider as a business owner. Let us break that down;
Pay schedule, also known as pay frequency, is how often your employees get paid or when you pay your employees. Check state and federal laws to make sure you are meeting the payday laws. The most common options include monthly, bi-weekly, and weekly payments. No matter the schedule you pick, it is very important to pay on time and be consistent.
Salary status is how wages are calculated. You can choose to pay a salary (exempt employees) or hourly (nonexempt). The right status is going to be determined by the individual needs of the business and also the position of the employee in question.
3. Understanding and Abiding by Wage Laws
It is a must for the business to comply with both state and federal laws, no matter what. You or someone in your business or organization needs to have a good understanding of your legal and financial obligations as the employer.
You should ensure you are making the right payments in terms of employment taxes/ Federal Insurance Contributions taxes (Medicare and Social Security), the right state and local tax, and the right income tax per employee. You need to double-check the payroll process to make sure that everyone has been paid on schedule and accurately. Check the payroll tax deposits to make sure they are keeping the regular scheduling according to your tax liability.
4. Setting up a Payroll System
This is any type of system that helps in calculating and managing employees’ paychecks. There are three options:
Manual Smaller businesses usually decide to do things by hand because they want to save on costs. This is the most tedious and time-consuming. It is also the most prone to errors.
Outsourced: You can hire someone to help with your payroll if you have the cash to spare. They take care of everything, from handling tax deposits to processing paychecks, employment taxes, payroll taxes, etc.
Software: This combines the best of both worlds – the control and cost-effectiveness of the manual option and the convenience and accuracy of the outsourced option. Today, the software comes with comprehensive features, which will make things even easier. It will handle everything from calculating payroll tax and storing information.
When you want to choose the best payroll system for the business, then you should consider a number of factors before making the choice. Below are some of the factors to consider:
Budget: How much can you afford to spend on a payroll system? If you don’t have much to spend on this, then there is a good chance outsourcing is expensive for you. One thing you should keep in mind is your time is valuable. It might be cost-effective to spend a little more on your payroll because you can get more time to focus on the more important aspects of your business.
The number of employees: Businesses that have few employees have an easier time with payroll. If you spend a few hours a week on payroll, then maybe it is working for you. The bigger the company, the more you are going to need someone else’s help.
Confidence: Do you have an HR or accounting background? How confident in your accuracy and payroll management skills? If you are not very confident, then you should consider outsourcing the work or letting payroll software do it for you.
5. Outlining Your Payroll Policy and Processes
Before you run the payroll, make sure you have a standard payroll policy in place suggest Payroll Index. This is needed to make sure everyone from management to HR to employees know how it works, the period of the payroll, and how much they are going to take home, and also how their benefits (overtime, leave, etc.) are going to be paid.
6. Using a Time-tracking system
A good way of managing employee productivity is using a timekeeping system. This is going to calculate their wages, especially those being paid on an hourly basis. The time tracking system has to be easy to use and hard to manipulate. There are different options, including systems that are going to integrate with the payroll system. This will make the information more accurate.
7. Keeping Track of Your Cash Flow
One of the greatest fear business owners have is not having cash to pay their employees. If you find yourself short of cash during the payroll period, then it is important to start looking at your cash flow and see the roof of the problem. When you monitor your cash flow, you can identify payroll problems such as overpaying or overstaffing. If the business is facing financial problems, then consider delaying vendor payment or collecting outstanding customer payments before you resort to options like delaying wages or downsizing.
8. Investing in a Payroll Manager/Point Person
Payroll can get complicated when it involves medium and large-sized businesses, so this is why most of them choose to go with the easiest and most reliable option which is to hire a payroll manager.
You should hire someone to help you with your payroll instead of having to spend hours doing it. This is a good thing because they are going to do things better and faster. You will have more time to focus on other more important aspects of your business. If the budget isn’t enough for a full-time payroll manager, then consider hiring a freelancer or assigning the task to a trusted and skilled employee.
9. Maintaining Employee and Payroll Records
Both state and federal governments have laws about how to retain and store payroll records. This is important in case a government agency needs access to the information. You cannot dispose of time cards for two years for active employees. Information regarding paid wages has to be kept for at least three years. There are laws about disposing of payroll records after an employee has been terminated.
