Payroll can be a confusing and challenging part of running a business. Pay Check mentions that payroll can be a complicated process. Yet despite this, small businesses cannot reliably pay their employees and meet tax burdens without an adequately organized payroll department or office. Staff costs are usually the most significant chunk of expenses for a small business. However, if the staff isn’t paid on time consistently, they will start to lose morale, and a company might find they have a massive turnover rate. Some ex-employees might even sue the business, putting it in an even worse position. Meeting these obligations should be at the forefront of a business’s consideration. Without employees to support it, it may very well collapse.
Even if a business does sort itself out and starts to grow, the problem resurfaces again. If a company has multiple locations, each boasting dozens of employees with several different grades of pay based on position, it’s easy to see how this could get out of hand. Corporate managers especially will have a hard time corralling a payroll of this size, much less processing it and getting it out on time. What’s more, not paying employees on time can open a business up to scrutiny from authorities. In the worst-case scenario, they may even face fines and penalties for ignoring labor laws. This article hopes to give you a few hints on managing your payroll system better to ensure you don’t fall into this trap.
Keep Track of Your Employee Status
This statement seems like a foregone conclusion, but the truth is that many businesses overlook it. Employees won’t let you forget things like benefits and bonuses or commissions, and if you fail, you’ll erode their confidence. It’s much better to have a system in place to keep track of these things. Ledgers and attendance sheets can help, but only if there’s someone specifically employed in payroll to keep track of these changes. Ideally, if you have a database for entering these details, there should be a flag for bonuses and commissions to be added automatically. Performance-based bonuses can boost employee morale.
The best thing about having this system set up is that it helps reduce wastage through overpayment and reduce morale hits through underpayment. Streamlining a system like this is simply a matter of linking attendance records to payroll sheets. Integrating your HR and payroll systems will make this task easier. There are several software suites that businesses can invest in to help them deal with the demands of payroll and HR. Barring that, a linked office database with automatically calculating payroll sheets in excel could also work in a pinch. You’d just need someone who knows Office software to administer it.
Get Better Payroll Projections
Businesses would be more efficient if they could predict payroll at the end of a month. Unfortunately, since fortune-tellers don’t work, a company doesn’t really have that much idea what payroll figures will be at the end of a month. However, the business does have an idea of what it will get in gross income from its established sales and outstanding invoices. Using this as a baseline, it can budget how much it can spend on employees, making it easier to manage the payroll at the end of the month.
Proper payroll budgeting considers sales peaks and troughs, contractual arrangements, compensation plans, and several other factors. Budgeting based on what the business can spend also means having a ballpark figure about what employees expect to receive. In the case of contracted employees, a standard sum of their hourly wage can give a baseline figure the company can work with. However, additions like commissions and bonuses will need to go above that baseline but come in (in total) below the business’s budget for employee payroll. By setting an upper limit on employee spending, the payroll team can be confident that they will always have funds to meet the demand.
Classify Employees Properly
Harvard Business Review notes that several types of employees get misclassed as contractors, which can have a knock-on effect on the business. In the payroll department, this misclassification can be extremely egregious. Taxes paid for contracted employees differ from those for freelance contractors. Most times, your payroll department won’t have to deal with paying taxes for freelancers who offer services such as brow microblading. However, if they are classed as contracted employees, the business will have to cover paying taxes for them. If they are also registered as a private business, they may pay their own taxes in addition to what you pay for them. This approach is inefficient and wasteful.
How employees are classed may also mean a difference in pay. It’s common in many private businesses to have an employee acting in a supervisory capacity but getting their regular pay rate. While this is technically an efficient use of resources, the company could lose a potentially gifted leader because they refuse to elevate them to conserve money from payroll. Classing employees properly also means that tax rates conform to what the IRS expects. There’s less chance of an audit in these cases, making it crucial to have employees paid based on the class of their labor.
Use Software to Ease Your Woes
One of the first things mentioned was keeping track of employee status. We touched on the fact that software, especially integrated suites, could make for a much more efficient methodology for managing workers and paying them on time. Payroll software can give businesses an edge when it comes to managing employee records and payments. They can cater to both employees and contractors, allowing the company to classify them based on their business representation.
Payroll software, if employed efficiently, can mean faster payment time for employees through automation. While software like Microsoft Office, Google Sheets, etc., can offer some level of automation, the truth is that it’s not enough to manage an entire small business’s payroll. Even in a company of less than a hundred employees, payroll records proliferate. Independent contractor paystubs will differ from employee paystubs, making it easy for handing out both and knowing who gets paid at what rate. If a business wants to keep its employees’ best interests at heart, payroll software is necessary. It’s the least a small business can do for the core of its services.
