Running your own company can be an exciting endeavor. You had a dream, and you figured out how to turn it into a reality. Now that your company is up and running, you realize how many different moving parts there are to make it continue working smoothly.
There are many administrative tasks that you may not have thought about during the excitement of getting started…that now are necessary to keeping the business going.
One such task is payroll processing. Put simply, payroll processing is the process of paying your employees…but it’s not as simple as it sounds. It involves taking out federal and state taxes, apportioning every paycheck to the right person in the right amount at the right time, dealing with overtime and paid time off and other payroll-related requests, and doing all of this with pinpoint accuracy for dozens, hundreds, or even thousands of people, every month.
And it’s not something you can just not do. If you have employees, you need payroll processing. Partly because employees who don’t get paid don’t keep working for you, but also because the actual processing part is a major internal function of your business. Without it, very little else will get done–and if it’s not done efficiently, everything else will slow down to match its pace.
So if you’re just getting up and running and hiring your first employees, now would be a great time to figure out your payroll processing system. And if somehow you’ve managed to keep your business running and your employees paid without a payroll processing system so far, well done…but now would be an even better time to put one in place before you hit a snag and your employees start reporting issues with getting paid.
Why Does Payroll Processing Matter?
Payroll processing is one of the key pieces of a company. If you don’t pay your employees, you will have some major problems. Either you will lose the trust of your employees, or they will find another job, or both.
Payroll is also important because it is one of the biggest overhead costs of the company. If you have incorrect or inaccurate payroll numbers, it will affect the other areas of your company budget and will get your finances off-track.
And don’t forget that you’ll stand to get hit with all sorts of fines and penalties if you do not provide accurate payroll. Complying with federal, state, and local employment regulations is an integral part of payroll processing.
What Does Success Look Like?
Successful payroll processing means a few different results that your company will love. Once you master payroll processing, you will see the following benefits.
Lower Risk of Compliance Issues
Compliance issues are no joking matter. Not only do they cost you a lot of time in trying to sort out where things went wrong and how to fix them, but they also have the potential to cost you a great deal of money in noncompliance fines and fees. In extreme cases, getting called out for payroll noncompliance could land you in state or federal court. By ensuring that your payroll processing is done right, you save yourself a lot of headaches and risks.
The happiness of your employees is integral to the success of your company. Unpaid or unreliably paid employees are unhappy employees, and unhappy employees perform badly and are more likely to quit. By paying your employees the right amount and on time, you can ensure they will want to continue working hard for you.
Balanced books are something you always want to have in a business, both for legal reasons (see compliance risks above) and to ensure your budgets are accurate and on target over time. Payroll processing is one of the biggest pieces of company bookkeeping, so ensuring that it is accurate will help set up your company to maximize profits and create successful strategies going forward. It will also mean much less work and fewer headaches at tax time!
There is no shortage of companies that have struggled with their payroll processing. It seems like a rite of passage for many companies. Unless, that is, you have prior experience that taught you how to do payroll the right way. This was the case for David Perry and his company VYRL. This company was not Perry’s first rodeo–he had led other companies before. He had learned the problems of not making a scalable payroll one of his top priorities, and that locking in a strong payroll processing system from day one is of utmost importance.
Perry was able to do this for VYRL with the help of Gusto payroll services. This service helped him to overcome several payroll challenges, including:
Contractors. VYRL hired contractors whose only means of getting paid was via invoice, which needed to be okayed by several people before being processed. This often caused delays and sometimes even led to the invoices getting lost. Since VYRL’s contractor positions were not going away (in fact, they were growing), Perry needed a way to ensure that his contractors were getting paid on time and the right amount. Gusto’s contractor-specific payroll processes enabled VYRL to streamline their contractor invoicing processes, dramatically reducing the delays and reliability issues.
Access. When doing payroll by hand, you typically have one designated person in charge of updating and changing all the information for all employees. This can get overwhelming, to say the least. Perry saw this as a problem with past companies, so opted for a payroll service that granted access to employees so that they can self-update their payment information rather than waiting for approval.
By streamlining and expanding the payroll processing for his company via Gusto, Perry was able to get rid of many common errors that could have led to even bigger problems.
One Secret Weapon To Master Payroll Processing
If you could only do one thing to make your payroll processing another simple, reliable task, it would be to implement a payroll services provider such as Gusto.
A payroll service has the potential to cut your costs in half by eliminating the need for a full-time payroll manager while also freeing up your time to work on other parts of your business.
Some of the other benefits of a payroll service such as Gusto include:
Automatic Tax Filing. With Gusto, you no longer have to worry about manually filing taxes. All local, state, and federal taxes are automatically filed. In addition to that, W-2s are automatically filed and available for all of your employees. Also, 1099s for freelancers will automatically be processed, and alerts will let you know of any important year-end dates.
Automated Payroll. Gusto allows your employees to onboard themselves rather than having someone in your company do it for them. This also grants your employees access to their paystubs and ensures that paydays are never missed. Money needed for payroll is automatically debited from your company’s account, and if a payroll run is missed, you can run it late.
Pay-As-You-Go Workers’ Compensation. Gusto provides you a way to pay for workers’ compensation as you go. This means you can make payments with each cycle as opposed to paying one, big lump sum. This feature also helps you to stay updated on changes in federal, state, and local requirements so you don’t run the risk of non-compliance.
HR Administration. Anyone who has ever onboarded employees knows that it is a time-consuming process. Add onto this requests for paid time off, managing employee information, and more, and you’ve got a whole lot of time spent on HR tasks. With a payroll service like Gusto, this level of time and effort is no longer needed. That is because everything is in one place, and also because employees can onboard themselves. In addition to that, Gusto allows you to use just one platform to manage requests for time off.
Employee Health Benefits. The benefits platform available with Gusto helps to make your employee health benefits process much easier. It offers online employee enrollment, an easy way to add additional benefits, as well as support from a licensed healthcare advisor that can guide employees through the process and answer any questions.
4 Essential Strategies For Payroll Processing
Payroll processing is, well, a process. And not always an easy one, depending on how you do it. However, there are some tips, tricks, and strategies you can use to make this task a less daunting one, as well as one that takes far less time.
Make a List
To keep your payroll accurate, we suggest making a list of all the tasks you need to do. This helps to ensure you don’t miss any important steps along the way.
Here are some of the steps you may want to include in your list:
- Gather employee time and schedule information
- Enter and/or review the hours for each employee
- Calculate payroll and withholding taxes
- Check that the tax numbers are accurate
- Pay employees
- Give pay stubs to employees
The list you create will vary depending on your business and also whether your company does payroll manually or via a payroll service.
By having a list of the specific steps you need to take, and by using this list every time to process payroll, you leave less room for error. This becomes your routine and inevitably ends up saying you time.
Check Employee Information
Rather than going back after the fact and correcting mistakes, take the time to check that all employee information is correct before processing payroll.
A quick and easy way to do this is with the help of payroll services. By bringing this software to your company, you make it easy for employees to access their information and make any changes to their address, add a qualifying life event like a birthday, self-enroll in benefit programs, and more. When hiring a new employee, many payroll services allow new hires to onboard themselves so that you can be sure all the information on paperwork such as their W-4 is correct.
Before processing payroll, it is a good idea to send an email out to employees to let them know that they have 24 hours to make any updates or changes to their information before you start cutting checks.
Modernize Your Payment Methods
Paying via checks is still an option, but there are more efficient payment methods that will make your life and your employees’ lives much easier.
Direct deposit is a highly popular method that streamlines the process for everyone. About 60% of employees in the United States are paid this way. Direct deposit erases the need to print and distribute checks and doesn’t require you to make sure you are fully stocked with supplies such as ink and check stock. In addition to that, you don’t have to stress about issues with the office printer delaying your paycheck distribution.
Organize Payroll Records
Keeping records of payroll will not only help you be able to find employee documents if needed, but it will also keep you compliant. The law requires you to keep payroll records for at least three years and keep records of employment taxes for at least four years.
While some people may opt to organize records manually by using cabinets and file folders, we suggest taking a more modern approach to organization and using a digital storage solution. Digital folders allow you to store employee and payroll records on your computer or better yet, in the cloud.
Regardless of what system of organization works best for you, implement this system as soon as possible. This helps to ensure that you have all important information on-hand and easily accessible when you need it.
Most Common Mistakes of Payroll Processing
Since there are so many moving parts to payroll processing, that opens up room for error. And oftentimes, it is those mistakes that can end up causing even bigger problems.
To avoid any of that from happening, here are some common mistakes that others have made, and that hopefully, you can learn from without making them yourself.
- Miscalculating Pay. Calculating the pay for each employee for each pay period can get tricky. Things such as overtime, commission, deductions, paid time off, and more can throw an employee’s pay off. Thus, you need to keep in mind what the different rules are for different categories of payment. For example, overtime typically necessitates paying an employee 1.5 times the regular wage for any hours worked beyond 40 hours per week, but for your company overtime may be handled differently. Knowing both the standard industry practices for categories like overtime and how your company may differ from those practices will help prevent payment miscalculations that lead to tedious and costly payroll corrections.
- Missing Payroll Deadlines. Not having a consistent, reliable schedule of payroll means that puts your relationship with your employees at risk. Timing is very important when it comes to payroll, and if you aren’t organized, you can easily miss a step in the complicated payroll process and cause the whole thing to be delayed, which will not go over well with your workers. Tax deadlines are also something to keep in mind, as missing them can lead to hefty late fees, penalties, and possibly even legal trouble.
- Failing to Send Out Tax Forms. The end of the year is a stressful time for those involved in payroll. This is the time in which they must send out all the required forms to employees. This means W-2 forms for employees and 1099s for contractors who earned over $600. By missing the deadlines for sending out these forms, you cause issues for your employees who are trying to get started on their taxes. You also may cause issues for your company, who may get fined for late delivery of the tax forms.
- Keeping Incomplete Records. As mentioned above, employers are required to keep payroll records for the previous three years. These records may show hours worked, payment rates, payroll dates, and more. Some states may even require records for more than three years. By having the complete records of all your payroll information, you make running payroll a more smooth process, and you have the things you need on hand in case you get audited.
Payroll can be a time-consuming and complicated process. But the good news is that you can make the process far less painful with the help of payroll services. Use this guide as a starting place to get your payroll on track for success, and implement the help of payroll services to ensure everything continues to run smoothly.