From the blog How to Do Payroll: 9 Tips to Optimize Your Payment Process
Your company’s payroll practices matter when it comes to efficiency, morale, and more. We’re here to show you how to make payroll better.
Doing payroll is a critical part of your business. Someone has to take care of it once a month, semi-monthly, bi-weekly or even weekly. Some small business owners outsource their payroll duties to accountants or third-party payroll services. Others handle payroll completely on their own.
You may be one of these DIYers. Consider this. If you could save time, money and effort, wouldn’t you at least take some of these ideas for a test drive?
In this article, we’re going to show you how you can do payroll to maximize your profits and minimize the time you spend handling these duties. We’ll go over 9 helpful tips and other payroll information you can implement into your payroll processes.
How to do payroll more effectively
When it comes to managing your payroll, running a tight ship opens doors to all types of possibilities. You’ll be able to effectively manage your budget, keep your employees happy, and help your business grow.
Optimizing your payroll practices can help you budget more efficiently. For instance, you can dedicate a bank account that exclusively deals with your company’s payroll cash flows. We’ll touch more on this below.
You can also take steps to make your payroll processes more transparent for your employees. Employees will be more satisfied if they’re able to see what they’re going to be paid and never encounter payment issues.
Both of these combined—among the many other areas we’ll cover below—can help drive the continuous growth of your business. Let’s get into 9 pointers you can take to improve your payroll practices.
1. Integrate with your other systems
Life gets a lot easier when you integrate your payroll system with your other business operation systems. You can connect your payroll with your accounting systems, HR programs and time-keeping software.
Take, for instance, connecting your payroll with your accounting software. As soon as an employee works a shift, your books will automatically be updated with the money you spent for their efforts.
The same goes for time-keeping software. Employees can see the number of hours worked in real-time and know exactly what they’ll be paid on their next paycheck.
2. Determine your payroll schedule
How often have you been paying your employees? Do you send out checks once a month, bi-weekly or weekly?
There are benefits and drawbacks to each approach. For example, having a monthly payroll schedule will reduce the time you spend taking care of these mundane duties. Instead of doing it 2-4 times per month, you only have to worry about doing it once.
Conversely, your employees may like getting paid more often as opposed to only once per month. Weekly and bi-weekly pay schedules can help employees better manage their personal finances. Paying bills and staying on top of financial obligations becomes easier with less time in between paychecks.
3. Outsource your payroll duties
How much time do you spend taking care of payroll duties every pay period? Chances are you spend several hours every month handling payroll tasks. Wouldn’t you much rather be focusing your efforts elsewhere?
If you’re handling payroll yourself, then consider outsourcing these duties. You have a few options to choose from. You can turn to an accountant, online payroll services or payroll software
A personal accountant can give you their undivided attention and understand the ins and outs of your business. They’re experts in their field and can help your tax forms, handle tax payments and find ways to save you money in the long run. The downside is that this can get quite pricey.
Full-service payroll services will process payroll but with more hands on deck. This may require more back and forth communication with your outsourced provider to make sure there aren’t any mistakes or oversights.
Payroll software—like Quickbooks—is convenient and easy to use. It automates your payroll and allows employees to easily submit and track hours. The challenge is successfully onboarding your employees to use this software effectively and without error.
You should be familiar with your payroll procedures and legal implications, but you don’t have to be an expert in tax law or run payroll on your own. If it makes sense for your business, you can leave the details to the experts and let a payroll provider take the reins.
4. Avoid unnecessary costs
In business, time is money. You only have so much time in the day and the last thing you want to be doing is completing your weekly payroll. If you’re spending a great deal of time on these tasks, then outsourcing might be the right choice for you.
However, you should watch out for high costs that come along with some payroll options. Compounding expenses can quickly add up and stifle your monthly profits. Some outsourced services are worth every penny. Others can be overpriced, charging upwards of $200 per month.
5. Have an official payroll policy
Implementing an official payroll policy will make sure everyone is on the same page. Put it all in writing. You’ll have a document you and your new employees can look back on if there are ever questions or disputes regarding payroll.
This document—which should be signed by new hires when first starting—will highlight what employee pay rates, when they’ll be paid, and whether or not they’re paid for holidays and sick days. Hold onto this document in case there are ever questions as it will clearly lay out all payroll details.
6. Have a separate bank account for payroll
A separate bank account for payroll can help you keep your company’s financials organized. It will show a clear picture of your company’s cash-flow, especially in the early stages of your business.
A dedicated bank account will help further down the road when you’re trying to figure out how much you’ll need to pay for payroll taxes, social security, benefits or Medicare.
7. Automate your payroll
Automating your payroll greatly reduces the chances that you’ll slip up and make an error somewhere along the way. The less manual input there is, the more likely you’ll continue to deliver error-free pay stubs.
In turn, your employees will be even happier if they never have to worry about running the numbers to ensure they’re getting paid the correct amount. They simply wait for the pay period to roll around and collect via direct deposit—error-free, how it should be. You may even be subject to fines and penalties from government agencies if mistakes keep popping up.
8. Don’t rely on a single employee
It’s great to rely on employees for certain tasks and responsibilities. However, there is a fine line between relying on employees because they’re great at a certain task and being completely and utterly dependent on them.
You should ask yourself what would happen if this crucial person were gone tomorrow. Would you be left scrambling without a clue? Would your team get paid accurately and on time?
If you have one person running payroll, you should have a pretty good grasp of what they’re doing and how they’re doing it. It’s also wise to cross-train your employees in case something comes up and you need someone to pinch hit. We’re not saying you need to worry, but you should be prepared just in case things don’t go as planned and someone else has to step in.
9. Keep payroll tax write-offs in mind
Did you know there are many aspects of your payroll you can write off at the end of the year? Payroll-related expenses should be top of mind when filing your federal income tax return with the IRS.
For new businesses, employee wages can be written off for your first year of operations. But what if you’ve been up and running for a few years already?
You can write off expenses like social security payment, health insurance, Medicare, workers’ compensation and unemployment charges. These are all related to your payroll expenses.
But there are even more payroll write-offs you may not know about. For example, paid employee vacation, sick days, bonuses, overtime pay, commissions and your entire employee benefits package can all be written off on your federal tax return.
What fits in your payroll system?
So what camp are you in? Do you enjoy handling payroll processing on your own? Or would you prefer to outsource this time-consuming task to a third-party?
Calculating payroll will always be a part of your business. The question is, how much will you be involved when it’s time to start paying employees?
Take some of these tips into consideration and see how they fit into your payroll processes. If you can adopt some of these practices, you can manage your payroll more efficiently and continue to watch your business grow.