Payroll management is a critical business process. Not only does it require accurate calculations, but it also requires strict compliance with federal, state, and local payroll laws.
Small businesses can manage payroll, work with a payroll service provider, or hire an accountant. Regardless of your chosen method, the following best practices can help ensure your business runs efficiently when managing payroll.
Automate Your Process
Automating your process is among the most critical small business payroll management best practices. It will save your business significant time, improve reporting, compliance, and employee satisfaction, and allow you to focus on other strategic aspects of your company’s operations.
If you don’t have the resources to invest in an automated payroll software solution, consider hiring a dedicated payroll specialist who can handle your company’s payroll processing needs. You can fill this role in-house or delegate to a trusted team member, such as an accountant, HR manager, or bookkeeper.
In addition to having a dedicated team member responsible for payroll, it’s helpful to develop clear procedures and processes that all employees can follow. It helps ensure the payroll process is accurate, consistent, and timely.
It includes documenting the steps for printing and filing paychecks and tax reports, determining deductions, allowances, and withholdings, and collecting employee timesheets. Developing these documents will help ensure that your company follows all local, state, and federal requirements and that the payroll system runs smoothly.
Setting up calendar alerts for any deadlines associated with your payroll process is also a good idea. These can be as simple as calendar notifications and are far more efficient than relying on human memory or jotting down notes on physical calendars.
Set Up a Separate Bank Account
A business bank account can help a company stay organized and reduce the risk of money management issues like overdrafts. While many small businesses use a single business checking account for all expenses, it’s crucial to have a separate payroll account dedicated solely to employee wages and taxes.
A payroll-only bank account helps streamline bookkeeping for your accountant or bookkeeper, who must only reconcile one account rather than multiple. It also eliminates the possibility of a mix-up between payroll expenses and other business-related withdrawals from your main business account, which could cause overdraft fees when employees cash their paychecks.
Separate accounts can also mask your main operating account number, which makes it harder for fraudsters to access your funds. In addition, using an independent payroll account can help prevent the misappropriation of payroll taxes that should be reserved for your tax payments and not used to pay other business expenses.
Lastly, opening a separate payroll account will help you decide how to handle payment systems such as direct deposit or pay cards. Ensuring that your employees receive their salaries on time is imperative to prevent mistakes such as underpayment or overpayment. It’s also a good idea to set a consistent pay schedule for your employees so that they know what to expect regarding when they will be paid each month.
Invest in Payroll Software
Investing in automated software can improve your business’s efficiency if you’re struggling to prioritize payroll processing and compliance. These tools help you to automatically calculate and process employee taxes, meet regulatory guidelines, track work hours, and manage expenses. Moreover, they can minimize the risk of costly errors during manual data entry.
Look for a solution integrating payroll and accounting systems to simplify the process and ensure seamless data synchronization. Selecting a platform that offers an employee self-service portal is a wise decision. This feature empowers your staff to submit expense claims and access their pay stubs effortlessly. It can significantly reduce administrative burdens and increase transparency in the workplace.
Another benefit of using payroll software is the ability to generate reports that help you keep up with your business’s compliance with tax laws and regulations. With these reports at your disposal, you can confidently identify any potential issues that could affect your compliance standing and take action to prevent them from becoming a problem.
Investing in payroll software can help you reduce the time and resources needed to perform complex payroll tasks, and it can also help you save money on payroll-related fees like bank charges, tax deposits, and audit penalties. To ensure you’re getting the best return on investment, research solutions that offer a high level of functionality and flexibility to find the right fit for your small business.
Schedule Regular Payroll Reviews
Payroll isn’t a one-size-fits-all process; it requires constant attention to ensure your business meets federal and state labor laws. Reviewing your payroll processes regularly can help you identify inefficiencies and errors to save time, money, and stress. It also helps you comply with regulations and laws to avoid fines or penalties.
A key consideration for your business’s payroll management is how often you’ll pay employees. The most common payroll schedules include monthly, biweekly, and semimonthly. Each has its pros and cons. For example, monthly paychecks can benefit your business by freeing up time for your HR team and organizing payroll-related paperwork. Hourly employees may find it challenging to cope with the monthly fluctuations in their work hours.
Biweekly payroll schedules offer the next best solution for these workers since they can receive their paychecks every other Friday. But this may create uncertainty for your team members, especially when they must plan their expenses for the following two weeks. In addition, your payroll vendor or bank (for paper checks) may charge additional fees for these transactions.
Whatever schedule you decide on, it’s essential to be consistent and communicate this information with your team. Ensure they know when to expect their paychecks and encourage them to ask questions if needed.