Payroll isn’t often at the top of most entrepreneurs’ priorities when starting a firm. You, like them, are probably more concerned with maintaining a competitive product or service and maintaining pleased customers.
Payroll management is essential for every company that employs people but it presents several obstacles. Employee morale may take a big hit if wages are paid late or incorrectly, and hefty fines can be imposed for violating tax or labor regulations.
Ten payroll issues small business face and How to fix them
Manual payroll processing
For extremely tiny firms, doing everything manually using spreadsheets or other rudimentary tools may be the most cost-effective alternative. However, it is labor-intensive and prone to mistakes; the complexity and hazards also rise as your company grows and more personnel are hired. No failsafe system is in place to help you avoid making errors, comply with rules, or secure sensitive data. That’s why it makes sense for most expanding firms to outsource this function to a software or payroll service provider and have it automated.
Record keeping
Accurate record-keeping is critical for legal as well as commercial reasons. Earnings records, for instance, must be retained for at least three years under the Fair Labor Standards Act (FLSA). It makes sense to employ payroll solutions to assure accurate and compliant storage even if you have a payroll expert on staff concerned with record-keeping.
Under and overpaying
Neither underpaying workers nor asking them to refund overpayments is popular. These mistakes may also make year-end accounting and W-2 processing more difficult and lead to time-consuming repairs the following year if they aren’t spotted promptly. Automated solutions are useful because they lessen the likelihood of human mistakes during data input or calculations. If you find an error in an employee’s pay, you should notify them as quickly as possible and work with them to resolve the issue so that it doesn’t put undue stress on their budget.
Following rules and regulations
If only rules and regulations stayed the same. However, they must also comply with several levels of government oversight. Significant fines and penalties may be levied if you fail to keep up with regulatory changes and improperly calculate employee pay or tax responsibilities. While reputable companies offering payroll services should automatically comply with new rules, it is vital to teach employees regularly to avoid learning the hard way.
Security
Private information like bank account and social security numbers, home addresses, and salary information are essential to the functioning of any payroll system. Keeping this information safe is vital for the company. There must be tight internal controls to limit who may access sensitive pay-related information. These are the essential things that must be taught during payroll training.
Misclassification
There may be a combination of permanent, temporary, and contract workers in even the smallest businesses. Misclassification, such as mislabeling an employee as a contractor, may have disastrous consequences for both the company and the worker. Contractors often do not qualify for benefits such as health insurance or unemployment insurance, although employees may. Be sure you’re familiar with the regulations; failing to do so might result in severe fines.
Processing
Payroll issues may arise from even seemingly little changes to employee information. Incorrect tax withholding might occur, for instance, if an employee’s address is not immediately updated when they relocate to a different tax jurisdiction. Self-service features in payroll systems may help alleviate pressure on your payroll department by allowing workers to change their personal information.
Proper Taxing
In most cases, the company must withhold the appropriate amount of taxes from employees’ paychecks and cover its part of payroll taxes. Since over 72% of IRS income comes from payroll taxes withheld by employers, the agency is incentivized to go after firms that get it wrong. This is another argument favoring an automated payroll system to handle tax withholding and filing.
Data management
Payroll is usually a company’s largest expense, so understanding how it affects profits is crucial. This is sometimes difficult to do when payroll is handled manually. If we wanted to reduce our overtime expenditures by 80%, how long would it take to figure out how much more personnel we’d need? Easier access to reports through software may aid the company’s ability to make tactical and strategic decisions.
Reduction in payroll expense
Businesses are pressured to maximize their resources while decreasing administrative expenses like payroll. Managing payroll manually is time-consuming and expensive, but fortunately, current payroll systems save administrative time and expense. Payroll services in the cloud may be accessible over the internet and paid for on a subscription basis, eliminating the need for in-house IT support and costly hardware upgrades.
Conclusion
If you are heading into a small business with a vast payroll check system, you must adhere to the above tips. This will save you a ton of time and ensure everything works smoothly.
