Ahh, payroll. The bane of all budding entrepreneurs, payroll is no simple task to manage. Most companies that don’t yet have a dedicated accounting team to handle payroll will hire a CPA or an outsourced payroll service in order to get the job done without any mistakes.
However, if you’re running a lean operation, that might not be an option for you. So, we’re here to help. In this article, you’ll learn ten top tips on how to do payroll.
1. Consider Outsourcing
The first and foremost tip to completing payroll may be a little counter-intuitive, but it’s to consider outsourcing!
Remember the law of comparative advantage: anyone who has significant experience in completing a specialized task has a comparative advantage over you in that task, being able to complete it at a much faster rate than you could yourself.
Thus, if you would spend eight hours completing payroll every pay period, then someone who specializes in it might only spend a single hour.
Think about how much eight hours is worth to you, then look at the price of an outsourced payroll service. Chances are, the cost of the service is far less than the value of what you could do to grow your business, freeing up those eight hours to become yours again to do with as you pleased.
So if you’re on the fence about outsourcing, price a few more payroll service companies before deciding one way or the other.
2. Have Employees Complete the Right Forms During Onboarding
One of the most difficult parts of processing payroll is simply ensuring that you have all the right information. By requiring all employees to complete payroll forms like a W-2 or a W-4 right in their onboarding process, you can ensure that you’re not scrambling around getting them to list their deductions right before payroll is supposed to go out.
At this point, it’s become fairly standard procedure in the industry to have employees fill out their tax information during onboarding, so if you’re not yet doing so then you’re behind the curve.
3. Pick the Right Pay Period
There’s a lot of decision-making that goes into picking the right pay period. Too often, and if you’re doing payroll yourself then you’ll be shooting yourself in the foot by giving yourself more work and more chances for things to go wrong with payroll.
Too rarely, however, and your employees will complain about it. The industry standard is every two weeks, so if you can’t make up your mind then go with that.
4. Leverage Software
Gone are the days when calculating payroll required several sheets of paper and a nifty calculator! In the twenty-first century, there are countless software options available out there that will help you complete your payroll much, much faster than ever before.
Don’t be afraid to invest a little into good software. The right software will handle pay stub creation, tax calculations, and much more. Particularly if you don’t yet have the funds to outsource payroll and thereby put more time back in your day, chances are that you do have the funds to purchase a software that will take a lot of the mundane, manual steps out of payroll, putting a little more time back in your day.
5. Direct Deposit is the Way to Go
Another part of the modern world we live in is direct deposit! Make sure that you make this an available option for your employees. Few people want to receive a check and go to the bank to cash it in when they could just have it automatically transferred into their bank.
Direct deposit is the way to go.
6. Keep Detailed Records
With anything financial, there’s no telling when the IRS may want to complete an audit or when you might have to dig back to find some old information about an ex-employee.
To protect yourself in those situations, make sure that you keep detailed records of your payroll, dating as far back as you can. The right software, as we discussed above, will be able to handle backing up all payroll data to the cloud.
7. Withhold Income Taxes
Make sure you stay on the right side of the IRS by withholding any income taxes that need to be. Don’t worry — again, the right software will enable you to do so as long as you have the correct forms filled out by all of your employees.
8. Use A Web-Based Hourly Tracker
If you’re still using any kind of manual time-tracker for your hourly employees, then you have fallen behind the times. Get on board with a web-based hourly tracker. A web-based tracker not only results in fewer mistakes, but it will also make fixing any mistakes that do come up much easier.
In addition, most hourly trackers will be able to integrate with your payroll software. Thus, instead of having to do any manual calculations with hours and hourly pay rates, all of that can be handled automatically by the tracker and then ported over to your payment system.
9. Test Before You Leap
Anytime that you’re bringing on a new payroll software or time-tracker, make sure to do a couple of test runs before launching it in full-force. For instance, do a one-cent deposit and have all employees report back to you to ensure that they are able to receive deposits.
10. Hire a CPA
Last but not least, consider hiring a CPA to make recommendations on how to improve your payroll process. The right CPA will have a massive wealth of experience when it comes to dealing with payroll and will have seen many companies in similar situations to those that your business currently faces.
Thus, they’ll be able to offer recommendations for you to handle payroll more efficiently.
How to Do Payroll, Made Easy
With this simple guide on how to do payroll, you should be able to much more efficiently pay your employees from here on out.
If you ever do decide to make the transition to an outsourced payroll service, make sure to check out our CPA services to see how we could help your business stay financially healthy!