8 Payroll Best Practices You Should Know

What are some of today’s payroll best practices?

• Automate your payroll for faster processing and accurate data
• Stay compliant with federal and state regulations to avoid fines and other penalties
• Use a consistent method for payroll processing as well as a consistent pay schedule
• Get real-time payroll data to have better visibility of your operating costs
• Use payroll software to streamline your administrative processes while giving you more control over your labor costs

Are you still struggling to handle payroll? For small business owners and HR professionals, payroll can feel like a juggling act. You’ll have to keep track of employee hours and time away. Then you can use this data to create accurate paychecks each period. 

Mistakes and errors can create problems for you as well as your employees. For instance, the Fair Labor Standards Act (FLSA) requires that you keep track of all your employees’ hours. Failing to do so can result in fines and penalties. It can also affect the cash flow of your business.

Payroll doesn’t have to be a nightmare. By using some of today’s best practices, you can transform payroll from a juggling act to a well-oiled machine.

• What is payroll processing?
• Top 8 payroll best practices
  • 1. Automate your payroll process
  • 2. Classify employees correctly
  • 3. Understand relevant laws and regulations
  • 4. Have a consistent, documented payroll procedure
  • 5. Use time tracking and attendance software to accurately record employee hours
  • 6. Keep track of payroll dates and deadlines
  • 7. Use a consistent pay schedule
  • 8. Gather real-time data about payroll and staffing
• Conclusion

What is payroll processing?

Payroll processing includes managing the records and data about employee hours, salaries, wages, bonuses, and deductions. Payroll processing also involves calculations of employee pay, including deductions for state/federal taxes and employee benefits. Payroll professionals also do payroll taxes and file accurate records for tax compliance. An accurate, timely payroll processing strategy will ensure that your business meets federal and local standards and that your workers receive consistent, accurate pay.

Top 8 payroll best practices

Are you relying on today’s payroll best practices to manage your company? If not, you might consider brushing up on the latest methods to improve your accuracy and efficiency. Here are the top eight payroll best practices to streamline your operations.

1. Automate your payroll process

Payroll software can make payroll processing a snap. Once your employee information is entered, you can run payroll with the touch of a button. Some software providers even allow employees to enter their own payroll data. That way, you don’t have to worry about manually entering or importing timesheets.

For example, When I Work offers a simple yet robust platform for tracking hours. The system calculates overtime pay automatically and can be used to track data over multiple business locations.

2. Classify employees correctly

Your employees occupy several different categories. These include:

• Full-time
• Part-time
• Contract employees
• Independent contractors
• Temporary
• On-call
• Volunteer

Additionally, employees can be either exempt or non-exempt. Non-exempt employees are legally entitled to overtime pay if they work beyond 40 hours in a given week. 

Exempt employees are not bound by this rule. This distinction also applies to job duties and benefits, which is why it’s important to carefully distinguish between exempt and non-exempt workers. This is especially true when you have non-exempt employees working alongside contractors or other exempt employees.

Misclassification leads to errors in your payroll. These errors can result in workers not receiving their benefits or overtime pay, or they could also result in paying workers more than they’re entitled to (e.g., paying exempt workers overtime). Errors in employee classification can also result in FLSA violations that lead to fines and other penalties.

3. Understand relevant laws and regulations

Every business is subject to labor standards, regulations, and other relevant laws. For example, the FLSA sets standards when it comes to minimum wage, overtime pay, and employee classification. Violations can result in fines and penalties, and employers may even be vulnerable to lawsuits from employees who were not appropriately compensated.

Payroll software doesn’t just make it easier to run payroll. It also makes it more accurate. Automated tools are designed to comply with all payroll laws and regulations.

4. Have a consistent, documented payroll procedure

As with most business processes, consistency is key. Most HR professionals adopt a regular procedure that includes:

• Gathering payroll data for each pay period
• Calculating gross pay
• Performing any deductions for payroll taxes or employee benefits
• Distributing pay via paper checks, direct deposit, or payroll cards
• Filing and paying payroll taxes

In addition to these regular payroll duties, staff should stay on top of legal or regulatory changes. These changes may affect the manner in which you compensate your team.

The important thing is to document your procedure to maintain consistency. Having a standardized payroll procedure will ensure that you maintain accuracy for each and every pay period.

5. Use time tracking and attendance software to accurately record employee hours

One of the most challenging parts of payroll processing is keeping track of employee hours and attendance. This is especially true of businesses with many part-time employees or workers who work rotating shifts—such as retailers or restaurants. 

Time and attendance software makes it easy. Most providers allow workers to submit their own time and attendance data.

When I Work, for example, offers an integrated time clock that lets you track hours worked, break times, and more. GPS features give you greater control over when and where your employees clock in and out for better accuracy and visibility. 

These features will make it easier to keep track of employee hours, saving you from manually entering data down the line.

6. Keep track of payroll dates and deadlines

Business owners face a small series of tax and reporting deadlines. Make sure to plan for these dates well in advance so that you’re not surprised when they roll around. Having a long-term payroll calendar will help you align your payroll processes to these various dates and deadlines. 

Keeping track of these dates and deadlines will ensure that you stay on target for tax season. Staying on task prevents you from getting behind in your payroll, and it can also help you plan for holidays or cyclical trends in your business. If you do encounter problems or errors, you can address them quickly before a small issue results in a major challenge for your business.

7. Use a consistent pay schedule

Businesses have some flexibility in terms of choosing a pay period. Some companies pay their employees monthly, others weekly, and some bi-weekly. 

Ideally, you should select a pay period and then stick to it. Doing so ensures accuracy and also keeps your employees engaged. After all, your workers deserve some predictability in their paychecks. Otherwise, you may see problems in your retention rates.

What about things like bonuses and overtime pay? By definition, these “extras” fall outside of the ordinary income your workers receive. But it’s generally best to aim to include this pay in the paycheck for the period in which it occurred. 

For instance, if a non-exempt employee puts in 45 hours in a given week, the next paycheck should include their regular pay as well as the overtime they accrued during that pay period.

8. Gather real-time data about payroll and staffing

Real-time payroll data will give you direct insight into your labor costs. Business leaders already rely on financial data to calculate their overhead costs. 

Payroll data will help you keep track of your operations, as well as identify trends and patterns that help you strategize for the future. If you’re working on a particular project, payroll data will highlight the way that labor costs can influence your overall ROI.

Payroll software can provide you with real-time data and end-to-end visibility over your workforce. 

Conclusion

Payroll best practices revolve around two broad commitments: internal consistency and external accountability. By leveraging payroll data, your business can ensure accurate payroll and compliance with established labor standards.Payroll software can help you bring these two goals into harmony. Automating your payroll will save you time while giving you even greater control over your labor costs. To see these features in action, sign up today for a 14-day free trial.