Payroll is an important aspect of running a business with employees. An efficient and organized process can make payroll less cumbersome and costly. Here are seven simple and effective payroll tips that can benefit every business owner.
1. Get the required information upfront. Make it standard practice to collect the necessary information from employees and independent contractors, including proof of identification, EIN/social security numbers, and W-4/I-9 tax information, at the start of a working relationship. (If you hire new employees, report the event to the state within 20 days). Though you may not pay an independent contractor enough to necessitate issuing a formal W-2 at the end of the year, having the required information on hand will reduce the scramble when tax season officially begins.
2. Understand the details of correct classification. The rules behind proper and improper classification of employees aren’t easy to interpret, and a simple misunderstanding can present costly fines. For example, though categorizing temporary and seasonal staff as independent contractors may simplify payroll processes, they may not be eligible for that status based on the details of the work arrangement, including work space, insurance or equipment that was provided. If you’re not absolutely certain you understand classification rules, seek the help of an expert.
3. Manage rolling deadlines for payroll taxes. Establish separate financial accounts to ensure a well-documented “paper trail” of withheld paycheck funds related to federal, state, FICA (tax employers must collect for Social Security and Medicare), and FUTA (unemployment taxes). Then, distribute them to the appropriate entities based on the mandated weekly, monthly, quarterly or annual deadlines associated with each type of tax.
4. Go paperless. It’s estimated that issuing one paper check represents a cost of about $3, when factoring for the costs of materials, postage and time. Transitioning payroll to an electronic, paperless payroll system ensures that employees receive paychecks in a timely manner, despite holidays, weekends or extended leave, and reduces the likelihood of fees associated with paper checks, including those for stop payments on lost checks.
5. Automate what you can. There are many low-cost, highly accurate and reliable electronic payroll processing systems geared toward businesses of all sizes, that can expedite the payroll process by eliminating redundant data entry (and the potential for human error). Because many of today’s payroll systems even work with mobile devices, payroll processing can be handled anywhere, at anytime.
6. Make time and attendance self-service. Tracking time and attendance is a time-consuming process for employees and managers. Establish a clear set of policies for how time off is earned and redeemed by investing in an attendance system that allows employees (and those processing payroll) to view time earned to date, time off that has been redeemed, and the amount of paid time left until it either expires or will be included in a paycheck.
7. Pretend you’re being audited. Keep tabs on payroll processes with the mental frame of mind that you are being audited. If audited, a business should have four years’ worth of records including the amounts and dates of wages, payments and tips reported, names, addresses, Social Security/EIN numbers of employees, copies of income tax withholding allowance certificates, dates and amounts of tax deposits filed, and records of “fringe benefits.” If you don’t have all the required documentation an audit requires, make sure you update your records accordingly.
The more streamlined your policies and systems, the easier it becomes to issue, manage and document payroll appropriately. By leveraging the technology tools available to small businesses in tandem with tight internal controls, you’ll ensure that payroll processing is both compliant and cost efficient.
Amber Blaha is the Vice President of Marketing at Velocity. Velocity Technology Solutions is a global provider of cloud application hosting and business process outsourcing for human capital management (HCM) solutions.
I have to say I just turn everything over to my accountant, after I export the information from QuickBooks. This is one area I do not want to make a mistake.
A great overview of the essentials when doing a payroll. I have just started to do the payroll for my business after leaving to my accountant for the last 2 years. Wish me the best.
Payroll is very important for various reasons: 1. Employees want to get compensated in a timely manner. 2. You need to be able to keep track of your employee time and pay, along with tax information. Software systems do make this easier or you can outsource to a company to handle it all for your business. Thanks for providing some great tips for those looking to improve their payroll systems.
Kayla Rogers says
It is such a good idea to make time and attendance self-service. Rather than taking time to track everyone’s times yourself, having them clock in and out themselves is a great idea. Plus, then you will always have the record available!
This is great advice for anyone who manages a payroll system. They can be super complicated but it can be easily managed with some care and close attention.
Sutton brandonn says
Hey, great share……
I was thinking of outsourcing the payroll services to some third party payroll provider as I don’t want any sort of mistakes in managing the wages of my employees. Your ideas and tips are definitely going to help me out.
Thanks for sharing this post. Keep sharing more…
Baxter Abel says
I really appreciate your tip to go paperless with payroll services. The job I currently have does paperless payroll, and my wife’s job doesn’t do paperless payroll, it is definitely easy to see the difference in the easiness between the two payroll styles in our two different jobs. I also like what you said about pretending a company is on their audit always in order to ensure the most accurate reporting.
Ian Horn says
Well, it is an useful blog. It tells about some important tips about payroll. I genuinely feel that all the tips are very useful because having a proper handle on the payroll is very essential. A business owner does not want to be over paying his employees or contractors and he certainly wants to ensure that he is staying compliant with the IRS when it comes to payroll taxes. Ya, it is important to have employee identification number by the help of which IRS is able to track the payments and also verifies compliance. As a final tip I can say that it is better to be diligent about the record keeping which helps in providing a clear structure about all the details related to the business. I want to say thank you for sharing this.
Ariel Cunningham says
thank you for sharing this 7 tips. this will help the owners to organize their own things. thank you and keep posting
Ethan K. Washington says
This is awesome! Payroll plays an important role in the company for several reasons because it keeps the records of the employee salary, bonuses, and increments, etc.
Ethan K. Washington says
This paper evaluates the effects of a fall in payroll taxes on employment and wages in the presence of high labor informality.
It is such a good idea to make time and attendance self-service. Rather than taking time to track everyone’s times yourself having an idea.
Robert Parkinson says
Another great (and easy) thing to do is to runa background check on new employees, websites like USA Trace and many others can all do this for a very small fee.
These tips are really helpful indeed, but I definitely agree on the above comments if you want to focus on your core business and expertise without thinking/doing the payroll for your business and committing mistakes, then you definitely want to hire a local or outsource staff that will handle payroll.
Vineet Kayal says
As a small business owner, you have to decide between outsourcing payroll and doing payroll in-house. This is something that small business owners deal with every day