Payroll Management Tips for Small Businesses
By Space Coast Daily // May 6, 2022
“You never want to be in a position where you can’t make payroll.” – Brian Acton. Managing payroll can be one of the most daunting processes facing your team each pay cycle.
Maintaining employee confidentiality, accurate time-keeping, backing up files, standardization, and more are all aspects of the payroll process that require extreme attention to detail in order to avoid mistakes. When mistakes happen, a detailed audit may be necessary.
A small business that manually runs its payroll tends to spend an average of 18 hours a month trying to pay its workers. For a small business that is likely doing anything they can to survive, that is 18 hours that could be spent helping your company get an edge over the competition.
What is Payroll Management?
Before we get into the tips, let’s first understand what payroll management is. Payroll management simply refers to the management of your company’s financial records. This can include information that includes employees’ salaries, bonuses, deductions, and incentives.
Employers are required to track this kind of information accurately in order to comply with income tax law. Failure to do so can result in legal action.
To figure out how to better manage payroll as a small business, we reached out to leaders across industries to hear their advice.
Have a Calendar
“The first thing I would recommend to any person who is trying to get a leg up on their payroll management is to create a physical calendar that will help you to organize and keep track of employee payments. Making sure everyone is paid on time is key to maintaining happy employees. No one wants to wake up on payday without their paycheck,” says Alex Wang, CEO at Ember Fund.
No matter what cycle you are on (weekly, bi-weekly, monthly, etc), you will need to have a payroll calendar to keep things in check. Luckily, in today’s day and age, there are many payroll calendar software programs to choose from.
Automate Taxes
Automating taxes and payroll doesn’t just ease the burden of managing your payroll, it also helps you avoid consequential errors that can occur due to human error if you attempt to do everything by hand.
“The penalties imposed on companies that attempt to handle payroll by hand can hit you in the wallet. Even just paying taxes a day late means a penalty of 2%. That penalty will increase the longer you wait, hitting 10% if you let it get to 16 days,” say Benjamin Meskin, President at Cabrella.
It sounds like something that would be easy to avoid, but even if there is a slight risk, it isn’t worth the potential penalty you could be faced with. “The faster the payments get to
the IRS, the better,” says Karim Hachem, VP of eCommerce at La Blanca. “We rely on software packages that automate the process and relieve us of the burden and I would recommend everyone do the same. It is worth the investment to cover your bases.”
Make sure to read the fine print on the software you decide on so you can be sure they will cover exactly what you need.
Set Up a Payroll System
“Electronic Accounting Systems processed my little payrolls like one big payroll. I did the selling, and the people I hired did most of the operations,” says billionaire entrepreneur Tom Golisano.
If you are running a small business, there is a good chance that you are running your payroll by hand, but again, you should avoid doing this at all costs. Payroll automation will save you time and energy and is much more accurate than doing it by hand. You can even outsource payroll to another company that will do it for you.
“Doing [payroll] on your own seems like it will save you money, but it will cost you so much time and potential errors that it is not really worth it in the long run,” says Omid Semino, CEO and Founder at Diamond Mansion.
Stay on top of employees’ W-4s when you bring them on in order to comply with state and federal laws. These will also inform how much you have to withhold from their paychecks.
“And don’t skimp on the software,” adds Sean Doherty, GM at Box Genie. “Budget for it each month and make sure it will fit all of your company’s needs so that you get more bang for your buck.”
Appoint a Manager
Small businesses might try to avoid bringing on a person whose sole responsibility is payroll, but this role is so important that you would be crazy not to, says Jeff Goodwin, Sr. Director of Performance Marketing and E-Commerce at Orgain.
“[Payroll Manager] is one that requires sorting through everything pay-related and understanding the complexities of a business’s compensation. This might be easier for a smaller team, but it doesn’t make it any less important or worthy of investment.”
When building out your team, see if there is anyone who has a background in accounting or HR or anything that might translate to payroll management. Approach them and ask if they would be interested in a new title with more responsibility and a bump in pay.
“Hiring internally is always preferred. Just make sure they are open to the changes in responsibility. Most people can handle payroll if they are given the right tools like good payroll software,” Jeff Goodwin added.
From there, you can start to build out a team around them as the workload grows.
Double-Check Your Data
Once you have a person handling the data entry, be sure to have a second person that can check everything for errors. “Bigger companies have whole teams for payroll, but in the early stages when your team is smaller, you will likely only have a person or two who can double-check the work that is being done,” says Phillip Akhzar, CEO at Arka.
Even a small deviation in the numbers can screw up all the data that comes after. It is highly recommended that you have a manager or another employee in HR look over the inputted data for errors.
“Before it gets to that stage, or if you really can’t spare another set of eyes to check everything, encourage the payroll manager to run numbers twice to make sure everything adds up,” he added. “As a leader, you should also be checking in every month to lend a hand and ensure they have a second pair of eyes on the data and check for errors.”
Keep Records
It should come as no surprise that you need to keep good records in order to monitor the goings-on of your business, no matter what size it is. Records will inform your every business decision. It is one thing to shoot from the hip when you are a one-person team, but as soon as others are on your payroll, you need to keep concise records to increase the likelihood of your business’ success.
There are federal and state laws that must be met when it comes to maintaining and storing payroll records in case government agencies need to access the information. “Having these records and making sure you can access them when needed is not only a recommendation, it is a legal requirement,” says Jean Gregoire, Founder and CEO at Lovebox.
Knowing these laws can make or break your business when it is in the early growth stages. They are complex and vast, so treat them as a major part of your business.
Payroll is crucial to your business. Following these tips will help you stay ahead of the competition.
