Payroll management includes processing employee salaries, deductions, and bonuses, maintaining adequate documents, and ensuring compliance with labor laws. Although several studies have shown the importance of managing your payroll effectively, many small business owners find it a complex and tedious task. However, payroll management is a crucial part of running your business, so you might want to check out these tips on how to manage your small payroll effectively.
1) Train your HR staff
The HR department does more than just hiring and managing staff records. Payroll processing is part of human resource training. While your business HR and Payroll departments have separate roles, they both play a crucial function for business success. Therefore, it is advisable to organize a payroll training program for your business’s HR department to enhance your payroll management procedure. Training your HR staff can benefit your business in several ways, including promoting collaboration, managing workload, enhancing team cohesion, and reducing the incidence of misunderstanding between your HR staff and employees.
Additionally, when your HR staff understands payroll policies, they can easily diffuse pressures when communicating with employees to improve relationships and boost the mood inside the workplace.
2) Have a payroll calendar
Payroll calendars help employees understand when they will be paid and when timecards are due. It also encourages your payroll staff to ensure they execute various tasks efficiently and on time. There are several ways to create a payroll calendar. Several businesses prefer to use payroll softwares since it automatically creates a calendar or schedule when it is set up. You can also use a spreadsheet to create a payroll calendar yourself. It would be best to consider these few guidelines when setting up your payroll calendar:
- Utilize a normal calendar as a guide to examine the right days the payroll process begins and the estimated availability of salaries for your employees.
- Provide your managers and supervisors with calendar copies for distribution to your working teams.
- Use colored fonts to emphasize certain information, for instance, early time cards due to a holiday.
A good payroll calendar should include all of the year’s pay periods to streamline payment processing and eliminate potential employee misunderstanding.
3) Regulate turnover processes
There are a few reasons why many businesses find payroll employee turnover disturbing. However, the key reason for this is that every business has its own unique payroll processing procedures. More so, it can take a while for new staff to learn. It would be best to consider strategies to regularize your turnover process and mitigate the effects of losing members of your working teams to other businesses, moving to different roles, and temporarily filling in for other team members who may be on leave. Fortunately, there are a few ways to ensure a smooth internal or external turnover process, including internal promotions to reduce the learning curve of new staff, maintaining a standard process, and updating your payroll templates. A standard payroll process can boost the efficiency and productivity of your payroll teams.
4) Stay updated on State or federal compliance
As a business owner or employer, it is essential to be updated with all tax duties and state or federal reporting requirements changes. Changes may arise for several reasons, including employee or business relocation, hiring new or remote employees, and so on. When this occurs, the employer’s responsibility is to collect and update the information required to appropriately compute payroll, taxes, and other compliances. For instance, compliance such as the Affordable Care Act (ACA) can be tricky, and you can use the expertise of a health insurance broker. This way, you can appreciate any legal requirements for your employee plans and stay ahead of any compliance issues. At this point, it is only right to look for the best medical insurance broker for your business and any potential payroll compliance issues.
5) Payroll reconciliation
Payroll reconciliation entails double-checking your work and ensuring that your expected payroll matches your actual payroll. It’s a good idea to check your payroll records every pay period before submitting quarterly taxes and sending out W-2s to employees to ensure that they’re up to date. Practicing payroll reconciliation also gives you the chance to examine employee pay rates and investigate anything that appears higher or lower than intended. During payroll reconciliation, you should take the time to check if some employees may have some overtime hours or tips. Be sure to examine deductions or withholdings, computed hours, and total pay for the period to avoid any errors. Fortunately, most payroll software will automatically identify potential inconsistencies and errors that may be subtler and difficult to detect.
6) Monitor your cash flow
Every business dreads not having enough cash to pay their employees. If your business is consistently out short when it’s time to pay your employee, you may want to examine your cash flow to identify the source of the problem. According to a study, 80% of small businesses fail due to cash flow problems. Monitoring your cash flow will aid you in detecting and preventing any potential payroll issues such as overpayment or overstaffing. Therefore, you should implement reliable cash flow management strategies to avoid any issues.
7) Automate your payroll
Aside from the payroll process being time-consuming and expensive when done manually, there is also the chance of making mistakes resulting in hefty penalties. This is usually the case for growing businesses with increasing employee numbers. More so, payroll processing can be a challenge when you have limited human resources and payroll staff. Fortunately, payroll automation offers a smart and easier approach to managing these time-consuming tasks. For instance, a few software solutions can help you efficiently manage your payroll system. Today, payroll automation is popular among business trends as many business owners embrace technological ways to run their business.
8) Ensure transparency in the payroll process
Employee misunderstandings of the payroll system are a common source of problems. This is particularly common in businesses where compensation regulations are either unavailable or poorly communicated to employees. However, several payroll concerns, including employee misclassification or unpaid taxes, can be resolved by implementing a completely transparent payroll policy. To make your payroll policy more transparent, ensure it includes information on how the payroll process works, employee classification, salary determination, and process for handling mistakes in the payroll.
It can be useful to also make sure it covers other things such as vocational earnings and calculation on wages and promotions. Consider putting the policy in writing, posting it throughout the workplace, and ensuring every employee has a copy.
9) Hire an expert payroll manager
Payroll can be complicated, and it doesn’t matter whether it’s for a small, medium, or large business. There is no point spending hours of your personal time managing your payroll when you can hire a professional to perform these tasks better. An expert payroll manager can help you enjoy optimal accuracy and eliminate risks related to late or incorrect paycheck issuance. As a result, your staff will be happier and more motivated to work. This also prevents the chances of making mistakes and gives you the chance to focus on other aspects of the business.
10) Avoid borrowing from payroll tax funds
When your business is low on cash, it can be tempting to “borrow” from your payroll tax fund funds. However, no reason is good enough to commit such a huge mistake. Poor judgments like this can easily be seen as nothing of a big deal until it’s time to complete your payroll processes. You may not have enough money to repay the borrowed cash, putting you at risk of not being able to pay the IRS.
At this point, it would be best if you opened a separate payroll bank account for your collected and contributed taxes. A separate payroll bank account can assist you in avoiding paying other business expenses with your payroll taxes. Likewise, you can set aside money for your company’s cash reserve. If you run out of money, you can use your emergency funds instead of your payroll tax dollars.
11) Document employee and payroll records
Payroll process documentation is crucial in payroll management. The strategy aids in payroll system analysis and auditing by highlighting each phase of the process and making it easier to spot flaws. After determining the payroll system that works for your company, it is vital to document the process and share it with the rest of your payroll team so that every team member appreciates their role and what must be done. Likewise, keep a standard payroll processing handbook for the payroll department. The handbook should cover all aspects of payroll processing, including reporting and check-handling. Ensure the payroll manual can advise on manually processing payroll during an emergency.
Paying your employees timely and accurately is essential for your business success, as it keeps them motivated and appreciated. However, this can only be done with the help of a robust and properly managed payroll system that can keep your business going and avoid costly mistakes. The tips mentioned above are a great place to start.