You have employees. They need to be paid. So, you pay them. Sounds easy enough, right? Well, not exactly.
Payroll management is a critical function for any business. The task of compensating your employees requires accuracy, timeliness, adherence to tax laws and employment regulations, and maintaining comprehensive records. With all the components that need to be in place to do this well, it can quickly turn into a painstaking process.
Whether you’re new to payroll duties in your organization or you’re looking for ways to enhance your process, the tips in this article will support you in becoming a pro at managing payroll.
1. Select a great payroll service.
Although payroll can be done with the use of spreadsheets and manual payment processing methods, there’s no reason for doing so with the variety of professional payroll services available. It is a smart idea to leverage the power of automated payroll processing and administration by using a system made specifically for those tasks.
Choosing the right payroll system starts by defining your needs. Some important items to consider include
- Where your employees are based; Payroll laws and regulations vary by state, and it gets even more complex when you’re paying workers outside of the U.S. Some payroll companies, like Patriot, are only for U.S.-based companies, while others, like Deel and Papaya Global, are suited for teams with global payroll needs.
- How employees want to get paid; Will workers receive paper checks, or are direct deposit capabilities important to you and your workforce?
- Payroll frequency; What types of processing times are necessary, and how often will you need to run your payroll?
- Types of payments; What are the different pay types (hourly, salary, or fixed payments) and groups (full- and part-time employees or contractors) in your organization? While most payroll companies can service all types, there are providers like Gusto that offer additional savings if you’re only paying contractors.
- Who is responsible for running payroll; If someone at your company does it in-house, how user friendly does your system need to be? If you want to outsource the entire function altogether, you may end up choosing a full-service payroll provider like Paycor or SurePayroll.
By understanding your needs, both now and in the future, you can select the best payroll service provider for your business.
2. Understand federal, state and local laws related to employee pay and taxes.
If you are responsible for payroll, it is essential to have a clear understanding of the laws and requirements related to pay and taxes. Since payroll laws vary by state, you must become knowledgeable about each state where you have employees. If this sounds like a lot to keep up with, check out our PEO guide to explore companies that can help you stay compliant.
Various payroll platforms have workflows and automations designed to help you stay compliant and on top of pay and tax-related changes. It is a great idea to utilize resources from their system administrators’ knowledge base, webinars and blog to stay informed. Additionally, training such as this one from HR Certification.com, can help you remain knowledgeable about the duties and responsibilities related to effective payroll management.
3. Establish time reporting and approval guidelines.
Administering compensation includes outlining how pay is determined (salary vs hourly), calculated, tracked, approved and distributed. It is essential to establish the guidelines for certain procedures, such as, time tracking and approvals for hourly employees, time off requests and pay deductions. Having guidelines and accuracy checks in place will ensure a smooth and timely process with fewer errors.
4. Schedule your payroll calendar for the year.
How often are you paying employees – weekly, biweekly, semi-monthly, or monthly? It’s important to establish a manageable payroll schedule that aligns with your workforce needs. Bi-weekly is the most common pay frequency, which works well for both salaried and hourly employees and is a bit more manageable for a small business. A weekly payroll schedule may be better for businesses with a majority of hourly employees.
Once you’ve decided how often you’ll pay your employees, communicate the pay schedule to your team and schedule your payroll tasks accordingly to ensure on-time payroll processing.
5. Determine how you will pay your employees.
Direct deposit is a popular method for distributing employee paychecks. You can also pay your employees with paper checks. Payroll cards are another option that offers flexibility for employees. Determine which options are best for your employee base and ensure you have the resources and capacity to successfully deliver through those methods.
6. Ensure new hires complete all payroll related paperwork.
Each time a new employee is hired, you must ensure they submit all necessary pay-related documents. This includes federal and state tax forms. If the employee is eligible for direct deposit, company-sponsored benefits, and other perks that require deductions, make sure the enrollments for these programs are completed. Generally, your payroll software allows you to include these enrollments in the onboarding process (or whenever the individual becomes eligible for them).
7. Review pay adjustments for the current pay period.
Sometimes payroll is very consistent from one pay period to the next. Yet, there can be one-off changes that occur that you want to be mindful of and review as you prep your payroll each pay period.
When employees update their tax withholdings, change deduction amounts, or receive extra pay for bonuses or overtime, it is important to review and approve the changes accordingly. Some payroll systems will automatically notify you when there are special or non-standard pay actions in a particular pay period. Other times, manually documenting these changes and acquiring the necessary approvals will be needed. So, take note and review them carefully.
8. Review payroll submissions with your payroll team.
Related to the last tip, some payroll systems, like ADP, provide a side-by-side comparison of the last pay period’s payroll total and the one you are about to approve. This offers an opportunity to double-check and ensure any substantial payroll dollar amount variances are understood and accounted for prior to processing paychecks.
It’s also a good idea to have a second reviewer that does a final check and approval before your payroll is processed for payments. This offers one last opportunity to make sure there are no errors prior to releasing funds.
9. Pay payroll taxes and file necessary paperwork.
Employers are required to pay payroll taxes and file necessary paperwork to federal, state and local entities. It is a good idea to maintain a separate bank account to pay these taxes in a timely manner. Many payroll platforms automatically file required forms, pay the taxes from your designated account(s), and maintain the records you’ll need for your own document storage compliance (this is usually authorized during your setup process).
Of course this can be done manually, but penalties for noncompliance can be stiff. Automating this through your payroll service provider will streamline the process and get one less, but absolutely essential, task off of your list.
10. Maintain accurate records.
There’s some basic information that you should maintain on each employee, including name, address, birthdate and social security number. You’ll also want to document how much each employee will be paid and the frequency. For non-exempt employees, you’ll want to ensure you have a record-keeping system that adheres to the Department of Labor Fair Labor Standards Act, where you also track hours worked and work schedules accurately.
Accurate record-keeping also includes ensuring proper termination procedures for all employees, paying final paychecks promptly and in accordance with specific state guidelines, and accurately discontinuing paycheck deductions, if applicable.
11. Conduct periodic audits of your processes, systems and practices.
Often you can find ways to run a smoother and more efficient payroll process by conducting periodic audits. Talk with employees and managers about any issues or errors they’ve encountered and see how those can be addressed. Additionally, review previous payrolls that you’ve processed to ensure there were no errors or that any errors that did occur have been addressed. Finally, discuss with other members of your payroll team and/or representatives from your payroll service provider tools and resources that can be leveraged to make the process even better in the future.
Pros & Cons of Payroll Management
- Keep employees happy with consistent and accurate payroll
- Many software options at various price points to fit your needs
- Automation and tech make payroll efficient and painless
- Manual processes are difficult to maintain and prone to error
- Lack of payroll knowledgeable can put your business at risk
The Bottom Line
Payroll management is an essential part of running a business. You can streamline and make payroll management more efficient through planning, standardization, maintaining a system of checks and balances, and using software. All of this will help minimize manual processes and errors, ensuring your employees are paid accurately and on time.
Payroll Management Frequently Asked Questions (FAQs)
It is important that your employees are paid accurately, timely and in accordance with federal, state and local laws. It is important to have trained staff managing your payroll processes. Leverage payroll software or payroll service providers that can automate and streamline workflows, resulting in fewer erros and more checks and balances for this critical task.
Payroll management is typically a task given to your HR or finance staff. Ensure the individuals administering your payroll are trained and knowledgeable in employee pay practices, laws and regulations.
When evaluating payroll software, it is important to understand your needs and how a platform can support your business now and in the future. Read our payroll software and payroll services for small businesses guides for specific recommendations on finding the payroll system that is right for your organization.