7 Helpful Payroll Tips For Small Businesses
byIf you want to be more efficient when it comes to your HR tasks, here are the key things you need to know about payroll for small businesses:
- The key to efficient payroll is automation
- Keeping up with changing laws and regulations keeps your business safe
- Organization leads to small business payroll success
- Thorough recordkeeping can defend against legal challenges
- Good payroll processes start with streamlined scheduling and timekeeping
Small business owners face a lot of challenges when it comes to payroll. From having to keep up with ever-changing compliance laws to simply finding the time to calculate wages, taxes, and overtime, the payroll process can easily become overwhelming.
It’s important for small business owners to know that many in their shoes face the same frustrations. Fortunately, there are solutions that can help reduce the burden for small business owners.
Even if you don’t have a full-time HR team, you can streamline the payroll process. Discover how technology and organization can help you make payroll more efficient, so you can stop spending so much time on HR tasks and take your business to the next level.
Table of contents
- What’s the most common payroll challenge for small businesses?
- 7 payroll tips for small businesses
- 1. Invest in a payroll software to automate the process
- 2. Maintain a regular pay schedule to keep things consistent
- 3. Use direct deposit to prevent stolen or lost paychecks
- 4. Keep track of tax forms for easier reporting
- 5. Know the relevant laws and regulations
- 6. Have thorough, up-to-date records
- 7. Have an accurate employee time tracking system
What’s the most common payroll challenge for small businesses?
In today’s world, remote and hybrid work is on the rise. With nearly 20% of all workers now working from home at least a few days a week, many experts believe the hybrid work model is here to stay.
While this is great news for employees and contractors, it can present a serious challenge for small business owners. The hybrid work model means you may be employing workers across multiple states.
Even if you’re a multi-location business with employees working in person, having workers in different places means keeping up with state and local compliance laws and regulations. This is challenging if you’ve never done business in those jurisdictions before.
Still, you can’t ignore these laws, as doing so can result in large fines, penalties, and even lawsuits. Finding a solution to this and similar issues is paramount to keep your business out of harm’s way without overwhelming yourself.
7 payroll tips for small businesses
Small business payroll can feel daunting for business owners, especially if you don’t have a full-time HR staff to take care of it for you. Here are several ways to improve payroll management and make the process easier for yourself.
1. Invest in a payroll software to automate the process
Small business owners have a lot on their plates. Calculating accurate wages for employees with multiple employment types and locations, filing payroll taxes, and staying in compliance with federal, state, and local regulations are just a few examples of required tasks.
Doing all of this manually increases the risk of human error. This, in turn, increases the likelihood of compliance issues. Additionally, it increases the administrative burden. Of all the HR activities to be done, 27% of payroll staff report spending the most time running payroll.
2. Maintain a regular pay schedule to keep things consistent
There are no federal laws stating you have to pay your employees on a certain schedule. However, most state laws say you must pay them consistently and within a reasonable amount of time after they complete the work. Some states, like Texas, go as far as to say that semi-monthly pay periods must contain a near-equal number of days.
Keeping a consistent pay schedule is the law. It’s also just good business. Getting into a routine with payroll can help lower your stress levels and reduce your chances of forgetting to run it. A regular pay schedule also helps you maintain good relationships with your employees, who will appreciate being able to count on consistent paychecks.
3. Use direct deposit to prevent stolen or lost paychecks
According to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), check theft and fraud have seen a sharp incline. Both have nearly doubled since 2021, and this pattern shows no signs of slowing down. As an employer, you may believe that there’s nothing you can do to help your employees avoid this, but that’s not true.
Using direct deposit is one way to help keep your employees safe. With direct deposit, their earned wages go directly into their bank accounts, so there are no paper checks to steal. Furthermore, your employees get immediate access to their funds in most cases since they won’t have to wait for the check to clear.
4. Keep track of tax forms for easier reporting
Federal law requires you to not only file and pay taxes but also report your payroll information to the IRS. This includes details about wages, tips, and any other form of compensation you pay out to your employees.
Some tax forms, like Form 941, require you to report on your quarterly taxes. Others, like Form 944, may require you to report information annually. There are other forms you must use if you’ve paid farmworkers or made non-payroll payments.
You can make reporting easier for yourself by keeping track of these tax forms. You might do that in your accounting software or simply file them away in a folder on your computer’s desktop. Either way, keeping them organized can reduce your stress levels—you won’t have to hunt them down when it’s time to file.
5. Know the relevant laws and regulations
Every industry has compliance laws and regulations. The Fair Labor Standards Act is a federal law that applies to most businesses and employees and governs minimum wage, recordkeeping, and overtime pay. FICA (the Federal Insurance Contributions Act) governs Medicare and Social Security tax withholding.
Still, every state and local jurisdiction has laws you must follow concerning payroll taxes, pay frequency, and even payment methods. Violations can result in costly fines, penalties, and lawsuits, which are a big deal to a small business.
Do what you can to protect yourself by using payroll software that makes calculations in line with relevant laws and regulations.
6. Have thorough, up-to-date records
Payroll recordkeeping is more than just a good idea—it’s the law. The IRS requires all businesses to keep records of employment taxes for at least four years. The FLSA requires you to keep time clock and other records for two or more years. Other types of records may need to be kept for longer.
Keeping updated records helps you find the paperwork you need in case you are ever audited. It also protects you in the event that a current or former employee files a complaint or lawsuit against you. With good recordkeeping, you’ll have proof that you’ve followed all employment laws.
7. Have an accurate employee time tracking system
One of the best payroll tips for small businesses is to start with employee scheduling and time tracking. When you track time accurately, you won’t have to worry about whether you’re paying employees the correct amount, withholding the right amount, or unintentionally missing overtime pay they may be owed.
A good time-tracking system gives you peace of mind that you are following the law and handling your payroll process with integrity and consistency.
