Payroll issues may cause your employees to be unhappy, stressed, and unproductive. Make sure you choose a payroll system that works for your unique business so you are able to pay your employees on time and avoid any problems.
Things to consider when choosing a payroll system include: budget, number of employees, and growth projections. Read on to learn more about small business payroll options that may help you pay your employees on time.
Considerations when choosing a payroll system
The first step in managing your small business payroll options is finding the payroll company that best fits your needs. Below are four key considerations:
- Budget. Your business budget is perhaps the most important aspect you should consider when it comes to deciding on a payroll – or any – service. You should t know how much you can pay monthly (or annually) to maintain your payroll operations.
- Number of employees. Online payroll services usually charge per transaction or employee payment so the larger your staff, the more you’ll pay. And that’s likely on top of a base fee. You should strike a balance between the platform’s per-employee cost and the value you get for each dollar you spend.
- Business growth and projections. You should consider making projections based on both positive and negative potential future situations. This pertains to payroll choices since, if you expect significant business growth in the near future, your payroll service costs may grow too.
- Efficiency. Keeping your operations streamlined is key to keeping up with payroll services. Your platform of choice should generally ensure that documents are organized in an efficient and accessible way. It should also account for employees’ hours and seamlessly pay everyone on time.
Steps to run your business payroll
Below are tips you may want to consider to run payroll once you’ve found the right service.
• Send employees the required tax forms
A key step in operating a small business payroll is making sure to send employees all required tax forms. These would include I-9 and W-4 forms for salaried employees and W-9 materials for contractors.
• Track and record employee hours worked
Time tracking is a huge part of running payroll operations as a small business – it’s how you calculate total wages for a pay period for hourly employees. Time and attendance software may provide an easy way for employees to clock in and out of work. You should be able to integrate this software with your payroll service for seamless, instant payroll calculations.
• Calculate wages and withholding amounts
Calculating employees’ net pay and withholding amounts is necessary for tax compliance. You should consider educating your employees on what is withheld from their salary and why so they know their pay stubs are accurate. A well-run human resources department or outsourced HR service may help handle this for you.
• Pay your employees
After the above steps, it’s time to pay your team. Your payroll software should help to automate this process. Come payday, your team should be able to receive their wages with no action on your end.
• Deposit the withheld taxes with appropriate government agencies
Payroll service providers help ensure that you’re accurately withholding and depositing taxes from your employee’s paychecks. This will include FICA taxes and income taxes, and separately, you must also pay unemployment tax. Thoroughly researching your tax obligations and seeking help from an accountant may help you understand what is required.
• File employer tax returns at the applicable deadlines
Filing employer tax returns on time is also key for successful small businesses. You should give yourself ample time to gather the necessary information and submit the returns. This way, you may be able to get through the mountain of paperwork with plenty of time to double-check your work.
11 ways to manage small business payroll options
You should consider implementing the below tips to manage your small business payroll options.
1. Register for an employer identification number
Obtaining an employer identification number online is fairly simple, and it’s a requirement before you start paying employees. Your identification number acts as your federal tax ID – it’s basically your company’s social security number. You’ll also need it for paying taxes, opening bank accounts, and applying for business loans.
2. Decide on a pay schedule
You should be consistent in how and when you distribute wages to salaried, hourly, and contract employees. This may be every two weeks via direct deposit or every week via an online payment service. Standard pay frequency options are usually weekly, semi-monthly, or monthly.
3. Determine your employee salary budget
Small business owners should set employee salaries consistent with industry averages. Part of this is considering what competitors might offer for a similar role. Offering pay and employee benefits on a similar level, but within your budget, may help you attract and retain talent. Keeping future raises in mind is also typically important when deciding employees’ starting wages.
4. Research, understand, and abide by wage laws
You should understand basic labor and wage laws and comply with both. This means adhering to minimum wage regulations and properly paying non-exempt employees for overtime hours.
5. Understand shifting regulations
You should stay up to date on constantly changing regulations in your industry. This might mean subscribing to industry newsletters or following blogs or niche news outlets. If doing the work to keep track of regulations seems like a big hardship, you may want to consider hiring lawyers or accountants to consult with.
6. Set up a payroll system
You can set up your payroll system manually, via outsourcing, or through online software. Below is some information on each method:
- Processing payroll manually involves using a spreadsheet to calculate how much to pay employees and how much tax to withhold from paychecks. This method is typically tedious and introduces a higher chance of miscalculation than the other options. However, it may be the budget-friendliest option for a business with just a few employees.
- Outsourcing the payroll process, meanwhile, involves delegating it to a third party. This is often the most expensive way to cover your payroll operations, as businesses or individuals typically charge more than software platforms.
- Using an online payroll service means that whichever platform you choose gathers the information you need, calculates tax withholdings, and makes employee payments. Most small business owners go this route since it’s the most cost-effective. That’s not to say it’s inexpensive, but you typically get plenty of value for your dollar – the whole process becomes automated.
7. Outline your payroll policy and processes
You should use clear language to describe how employees should document and submit their time worked. You should also cover how you’ll set salaries, payroll schedules, and payment methods. Additionally, you should consider detailing how employees can request adjustments if their paychecks are inaccurate.
8. Set up your time-tracking system
Your payroll policy and software are incomplete without a time-tracking system to power them. These services are often desktop apps or websites, so setup should typically be quick and easy. Connect your system of choice with your payroll service, and you’re likely good to go.
9. Designate a payroll manager
Even with your payroll fully automated, issues may still arise, and someone on staff should be the go-to in these moments. Delegating these concerns to a payroll manager may help to keep your plate free for higher-level concerns while keeping your business on top of employee pay. This can be someone already on staff, or it can be a new team member you hire.
10. Maintain employee and payroll records
Federal law states that business owners must retain payroll records for three years and payroll tax records for four years. This means you should create a well-organized system for these documents. If any tax authorities ask for them, you’ll know exactly where to find them.
11. Keep track of your cash flow
You’ll need ample cash flow to pay your employees. You should regularly check your cash inflow (money that comes into your business) and outflow (money used to pay for expenses and operating costs). If the former isn’t big enough to cover the latter, you might struggle to cover your largest expenses, including payroll. That’s typically a fast route to high employee turnover rates, but you may be able to avoid it if you obtain extra working capital through small business funding.
Cover your payroll costs with SmartBiz®
Even with the right payroll solutions in place, your business may still struggle with cash flow as it grows. This may make paying your employees more difficult, but SmartBiz may be able to help change that picture. You may be able to utilize SmartBiz to apply for SBA loans, bank term loans, and custom financing options to affordably increase your cash inflow. Check now whether you pre-qualify* – it only takes five minutes, and it’s a great first step toward paying your team consistently and on time.