Payroll management can be complex and time-consuming, but accurate and timely reporting is critical for ensuring employee satisfaction and maintaining compliance with the relevant authorities. If a business is unable to reliably keep an accurate running total of employee hours, withholding obligations, sick days, vacation days, health benefits, retirement plans, bonuses, and any other details specific to their individual situation, they are destined to make mistakes on all fronts, and expose themselves to both unhappy employees and wrathful regulators.
Let’s look at three common problems businesses often face when trying to manage payroll and some steps they can take to address them.
1. Lack of organization. One common issue that many small businesses face is a disorganized payroll process, which may include any number of problems, including:
- Inefficient data collection. Businesses that rely on handwritten timesheets or have multiple people responsible for tracking schedule changes, like sick days, vacation days, and other deviations from each employee’s “standard” pay period, often struggle with errors and inconsistencies.
- Inadequate delegation and oversight. Haphazardly including multiple staff members in the payroll process without clear, defined responsibilities often results in communication problems and errors.
- Failure to maintain organized and easily accessible payroll records can make it challenging to find information, correct errors when they occur, and meet regulatory requests.
These issues can lead to inaccurate or late paychecks, over or under-withholding of taxes and benefits, and wasted time trying to correct errors and appease unhappy employees. Correcting organizational issues takes time and effort, but the investment is worth it. Some necessary steps you can take include:
- Developing a payroll calendar that establishes a consistent, non-negotiable schedule for processing payroll, including deadlines for submitting timecards, payroll
- Establishing a defined system to update and maintain employee records, including contact information, tax withholding information, and benefit deductions.
- Assigning clear roles and responsibilities ensures that each person involved in the payroll process understands their role and that “ad hoc” delegation, for whatever reason, is eliminated or kept to an absolute minimum.
2. Inappropriate Software Choices. Every business has very specific individual needs, but for various reasons, they may end up using software that fails to meet those needs. Payroll management software is ever more capable, efficient, and effective, and at a minimum, should provide:
- Customization and scalability. Payroll software should be customizable to fit the business’s specific needs, such as support for different pay structures, pay frequencies, and overtime rules. It should also be scalable to accommodate business growth and changes in employee headcount.
- Integration with other systems. These days, an essential aspect of apps is integration capabilities with other software to build your “stack.” Your payroll software should be a part of or be able to integrate with existing HR, time and attendance, and accounting systems to streamline processes, reduce errors, and improve overall efficiency.
- Tax compliance assistance. Software shouldn’t be a standalone tax compliance solution, but it can be a great help. A good app should support automatic updates for changes in tax laws and regulations, provide accurate tax calculations, and generate tax forms and reports required for filing.
- Labor law compliance assistance. Again, though it shouldn’t be your only source of information, many apps on the market provide excellent guidance to help businesses comply with relevant labor laws, such as wage and hour regulations, overtime pay, and family and medical leave requirements.
3. Complex and constantly changing rules and regulations. Small businesses, in particular, need help to comply with tax laws and industry regulations when it comes to payroll management. The rules can be complex and can change regularly, resulting in problems like:
- Misclassification of employees. Incorrectly classifying employees as independent contractors or vice versa can lead to improper tax withholding, lack of overtime pay, and failure to provide benefits as required by law.
- Failure to maintain accurate payroll records. We discussed accurate record keeping as a part of being well-organized, but even a perfectly organized and maintained record-keeping system won’t help if you’re not organizing and recording the right things. It is critical to keep up with what the rules require to ensure that you comply with tax and labor regulations and minimize the risk of audits, fines, and penalties.
- Failure to withhold and remit taxes. Again, the best internal payroll process in the world won’t help if your income tax withholding, Social Security, and Medicare calculations aren’t based on the correct numbers.
Aside from enlisting professional help, some steps you can take to improve this aspect of payroll management include:
- Subscribing to government and regulatory agency newsletters. Most, if not all, of the important national and state agencies related to taxes and labor laws produce regular digital newsletters that businesses can subscribe to. Even more helpful are more specific groups like the Small Business Administration and the American Payroll Association.
- Attend workshops, webinars, and conferences to stay abreast of tax laws and labor regulations changes. Again, the American Payroll Association is a good resource, as are the Payroll Training Center and the National Association of Professional Employer Organizations.
- Utilize your payroll software’s automatic updates and compliance tools since you have used tips in the previous section to choose apps that provide them.
Effective payroll management is essential for any business, large or small. If your business needs help implementing a timely and error-free payroll process, consider whether these issues are part of the problem. Investing time and effort into these areas will help maintain a smooth payroll process and contribute to the company’s growth. Small business owners can focus on other critical aspects of their business by taking these steps, fostering a solid foundation for a prosperous future.