Payroll is an important aspect of running a business with employees. An efficient and organized process can make payroll less cumbersome and costly. Here are seven simple and effective payroll tips that can benefit every business owner.
1. Get the required information upfront. Make it standard practice to collect the necessary information from employees and independent contractors, including proof of identification, EIN/social security numbers, and W-4/I-9 tax information, at the start of a working relationship. (If you hire new employees, report the event to the state within 20 days). Though you may not pay an independent contractor enough to necessitate issuing a formal W-2 at the end of the year, having the required information on hand will reduce the scramble when tax season officially begins.
2. Understand the details of correct classification. The rules behind proper and improper classification of employees aren’t easy to interpret, and a simple misunderstanding can present costly fines. For example, though categorizing temporary and seasonal staff as independent contractors may simplify payroll processes, they may not be eligible for that status based on the details of the work arrangement, including work space, insurance or equipment that was provided. If you’re not absolutely certain you understand classification rules, seek the help of an expert.
3. Manage rolling deadlines for payroll taxes. Establish separate financial accounts to ensure a well-documented “paper trail” of withheld paycheck funds related to federal, state, FICA (tax employers must collect for Social Security and Medicare), and FUTA (unemployment taxes). Then, distribute them to the appropriate entities based on the mandated weekly, monthly, quarterly or annual deadlines associated with each type of tax.
4. Go paperless. It’s estimated that issuing one paper check represents a cost of about $3, when factoring for the costs of materials, postage and time. Transitioning payroll to an electronic, paperless payroll system ensures that employees receive paychecks in a timely manner, despite holidays, weekends or extended leave, and reduces the likelihood of fees associated with paper checks, including those for stop payments on lost checks.
5. Automate what you can. There are many low-cost, highly accurate and reliable electronic payroll processing systems geared toward businesses of all sizes, that can expedite the payroll process by eliminating redundant data entry (and the potential for human error). Because many of today’s payroll systems even work with mobile devices, payroll processing can be handled anywhere, at anytime.
6. Make time and attendance self-service. Tracking time and attendance is a time-consuming process for employees and managers. Establish a clear set of policies for how time off is earned and redeemed by investing in an attendance system that allows employees (and those processing payroll) to view time earned to date, time off that has been redeemed, and the amount of paid time left until it either expires or will be included in a paycheck.
7. Pretend you’re being audited. Keep tabs on payroll processes with the mental frame of mind that you are being audited. If audited, a business should have four years’ worth of records including the amounts and dates of wages, payments and tips reported, names, addresses, Social Security/EIN numbers of employees, copies of income tax withholding allowance certificates, dates and amounts of tax deposits filed, and records of “fringe benefits.” If you don’t have all the required documentation an audit requires, make sure you update your records accordingly.
The more streamlined your policies and systems, the easier it becomes to issue, manage and document payroll appropriately. By leveraging the technology tools available to small businesses in tandem with tight internal controls, you’ll ensure that payroll processing is both compliant and cost efficient.
Author Bio:
Amber Blaha is the Vice President of Marketing at Velocity. Velocity Technology Solutions is a global provider of cloud application hosting and business process outsourcing for human capital management (HCM) solutions.
