5 Basics Of Payroll Management For Small Businesses

by Staff

Every employee looks forward to payday, except for those business owners with an inefficient payroll system. For small businesses, doing payroll is probably one of the most time-consuming, confusing, and tedious business activities. However, it’s also one of the most important. An inefficient payroll system can mean late pays, which can lower employee morale, tie up critical company resources, and run your business into the ground.

That said, you want to make sure that you have a well-managed payroll system. This article discusses the basics that can ensure your payroll system operates at its peak efficiency.

Decide On Pay Schedule And Always Pay On Time

Pay frequency is a key decision towards efficient payroll management. Also referred to as pay schedule, it’s when and how often you pay your employees. You can check state and federal laws to ensure that you’re meeting your location’s minimum payday laws.

In general, the common payroll schedules include weekly, monthly, and bi-weekly. Regardless of what you choose, you need to keep it consistent. Paying your employees on time is essential to establish satisfaction. That said, if you run out of cash to pay your employees on the pay schedule you’ve set, it’s worth considering short term working capital loans.

A working capital loan is a flexible loan option for small businesses that need cash to cover immediate expenses. It’s often used to fund expenses related to daily operations such as payroll, operational costs, and rent.

So, suppose your payroll is due the next day and your account receivable won’t come until next week, the cash you get from a working capital loan can help in paying for both of these things.

Keep Updated Employee Records

Up-to-date employee records are critical for payroll; thus, employees should let you know when their data changes. You need to start by ensuring employees know how to update their payroll information—whether via a paper form or an employee portal. You want to keep note of any changes in your payroll system.

If you’re using a payroll system with an employee portal, you’ll likely be notified of any changes automatically. But if you’re still using manual processes, then an employee will need to hand you a printed form and manually update your records.

Be mindful of the simple updates such as a new address or a surname change. Be careful about adjustments that affect deductions, pay rates, or taxes. For instance, a recent pay raise can affect the pay rate, a benefit election can affect deductions, and a new W-4 can affect tax withholdings.

Be Diligent When It Comes To Taxes

Some businesses need to withhold a portion of their employees’ paychecks for taxes. The priority is state, local, and federal income taxes. At the same time, employers are accountable for state and federal unemployment taxes as well as their FICA taxes.

Not only that, but employers also have tax payment shares on their employees’ Medicare and Social Security taxes. Intervals for paying depend on the kind of tax. Employers pay FICA taxes and federal income on a semi-weekly or monthly basis while the tax for federal unemployment is done quarterly.

Other taxes have their distinct deadline so make sure to check with the local and federal government about the schedules.

Outsource Payroll Service Or Use A Payroll System

As a business owner, you’re responsible for ensuring that your payroll is accurate. However, it doesn’t mean that you should manage all aspects of the payroll process. Professional payroll assistance can be a rescue boat for businesses trying to navigate the complicated world of payroll. Certified public accountants, payroll specialists, and bookkeepers can help your business with the most complicated processes.

And if you don’t have the budget to hire a specialist, you can always outsource these talents. Take note, however, that even if you get outside help, you’re still responsible for reviewing and approving the payroll and ensuring that the information you give to the provider is accurate and current.

If you already have a specialist in-house but still need help in managing your employee payroll, then payroll software can help them save time, reducing the risk of mistakes and automating certain processes. Most payroll solutions can handle the complicated tasks of tax filing and payments on your behalf, but your in-house payroll specialist is still essential to meet those obligations.

Reconcile Payroll

This process means checking your work and ensuring that your expected payroll matches the actual payroll. This is a good practice to do every payroll period before sending out W-2s to employees and before filing quarterly taxes.

You need to review employee pay rates and look into anything lower or higher than expected. Check tips and overtime hours, particularly for employees working shifts. Make sure to check for errors in deductions or withholdings, calculated hours, and total pay for the pay period.

Always check your work for at least two days before giving out payroll. If you’re a bigger company or have a more complicated payroll, give yourself more time to review your payroll.

For most small businesses, doing payroll can be a complicated process. However, with the handy business tips and payroll best practices from above, paying your employees will be more accurate, streamlined, and easier than ever before.


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The New Jersey Digest is a new jersey magazine that has chronicled daily life in the Garden State for over 10 years.

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