15 Tips For Payroll Management In 2024

To keep employees productive and productive at work, payroll should also be done correctly with no errors because it is a significant expense in a company that allows no errors at all. The payroll team member has to deal with a long list of responsibilities including cutting paychecks which is only a small portion of the job.

 The scope of payroll tasks any business needs to consider can be too much so businesses can benefit from making improvements to tighten up the process. The next 15 payroll procedures and tricks can benefit both big and small companies leading to efficient payment processes, starting with compliance with wage laws and up to the technology powered by payroll software.

What Is Payroll?

“Payroll” is an expression that assembles various solutions, but usually it defines the whole process of paying staff. Sometimes, payroll is very complex as it does not only consist of making sure that workers receive their payment properly and on time. For instance, the payroll involves laws of tax and wage, paying of payroll taxes, proper storage of records, handling benefits, cash flow which is enough to cover payroll expenses and even keeping employees satisfied with their jobs.

15 Tips For Payroll Management For Businesses

Successful payroll management is inevitably associated with careful analysis. The payroll scope for startup organizations is wide. Though the established companies may already have some skill sets in place, can also benefit from reflections to ensure that not a single item gets left out. The following tips would be helpful to reduce costs on your account for payroll efficiency. 

1. Get an EIN. For all types of businesses, employers who have employees or plan to hire new employees are obligated to get an employer identification number (EIN). The IRS generates through EIN to deal with the collection of payroll tax and business income taxes. Companies that might consider employing employees see an advantage in using an EIN. Therefore, you will be able to perform your tasks by hiring when needed and finding the right person.

The IRS allows companies to obtain an individual EIN free of charge. The quickest way is to get on the IRS’s website besides applying for the EIN by fax, mail, or phone. It is generally an easy process to apply—the applicant needs to have a valid taxpayer identification number, whether that is a Social Security Number (SSN), ITIN, or an EIN for different cases.

2. Set a budget. It is critical to thoroughly comprehend the fact that payroll expenses will have an impact on the company’s finances so the company should always have enough money to pay for the employees on time. However, the payroll is a widespread cost header which takes a bigger part than it is expected. In addition to the salary, the employers are legally obligated to match the Social Security and Medicare at the cost of their gross salary (averaging an equivalent of 7.65% of the employee’s pay) is mandatorily matched by the employers.

Payroll taxes could be higher or lower generally depending on the state involved, and some states may impose additional employment taxes. Besides, companies that provide benefits such as health coverage or a match to a 401(k) come with additional costs, which is also an important aspect. In total, payroll taxes, benefits, workers’ compensation, and other payments can add up to 15 to 20% to the payroll expense.

One step that budgeting may include could be calculating the bills of payments per employee as a percentage of revenue of the company to see whether or not the company will manage to maintain profit margins. The average percentage of revenue will be different from one industry to another, which is why businesses have to research the wages of their competitors which are publicly traded well-known organizations. 

3. Accurately classify workers. To ensure that you pay them correctly and are in compliance with the IRS and state requirements regarding workers’ classification you must properly classify them. Workers are usually classified as either employees or independent contractors, based on the business and whether the business needs are met. The failure to properly classify employees e.g. an employee is wrongly hired as an independent contractor can result in detrimental tax infringement. This is because businesses must meet tax obligations and withholding requirements governing their employees but not contractors.

To start, the employer must have a Form W-4 completed for every full-time or part-time employee. At the same time, the contract personnel must file a Form W-9. Companies that are not sure about how to categorize workers can simply fill out and send in Form SS-8 to the IRS, where it will be determined whether the worker is an “employee” for Federal employment tax and income tax purposes.

4. Make the choice if employees will be hourly or salaried. Workers who are designated employees are to be classified as either hourly or salaried. The FLSA (Fair Labor Standards Act) constitutes the base for hourly workers who have a right to earn overtime and more than 40 hours in a week. On the other hand, some employees could be FLSA overtime law exempt if they are salaried workers.

Companies frequently prefer to pay employees using salary because it stabilizes payroll, and they don’t need to worry about how many hours they work, as they’ll give the same money every month. As to how to obtain salaries employees must perform specified job duties as well as other qualifications, which the Department of Labor sets. Sometimes it is hourly wages that you get the help quicker. On the other hand, employees who are paid hourly would find managers have more ability to decide on when to schedule their hours, which is convenient for roles that don’t require to be booked every hour.

5. Create a payroll schedule. Establishing a payroll schedule consistent with your business’s cash flow needs is helpful to avoid the crunch, but also pay attention to conforming with federal and state law because payroll schedules can change as much as state laws do. It could be always kept constant but it is a personal preference of an employer which pay period they are likely to choose. Employees use their paychecks as a source of income, so issues with payments may result in employees dropping their morale.

Payday falls every two weeks is standardized, but some employers pay employees weekly, monthly, or even twice a month. Paying out paychecks with fewer intervals automatically simplifies the paperwork, however, employees can choose to be paid at more frequent intervals. Choose the pay cycle that will meet your employees’ needs,  your business cash flow budget, or even both. 

6. Stay updated about labor laws, the rules in payroll, and taxes. Tax regulations for companies promote employment taxes to be paid in the proper amount, while labor laws try to help companies ensure the welfare of the employees to a certain level. Both of these laws are shown at the federal, state, and local levels and are subject to change. Not complying with any change upgrades can cause incorrect payment allocations to employees and unintended tax liabilities, both of which can later lead to penalties and fines. Missing deadlines can lead to late fees as a consequence. Failure to comply with labor laws can raise dangers for the Department of Labor, diminish employee morale— and then even to a lawsuit. 

Businesses do not have the option to do it in any other way than staying up-to-date about all the wage laws and tax responsibilities regardless of change. One of the ways you can help yourself regarding taxes is to ensure that you do your due diligence always and keep a personal calendar with the dates of all important tax deadlines. Hiring a committed payroll service provider who keeps clients updated about all the labor laws and payroll regulations is also very useful on many occasions. 

7. Provide simple and transparent policies. As payroll-related policies, including leave, attendance, and benefits get complicated, processing payroll will get more complex, and probably much less likely employees will understand your employment policies. Plan out the guidelines in good detail, – stating how employee payments are made and when they are made plus additional considerations for instance, how to account for expenses and rules around benefits eligibility and paid time-off.

Develop and regularly be sure that your payroll policy document is written in a way that is informative and accurate. By all means, update the policy document as often as necessary. Make sure that payroll policies are properly communicated and understood by each employee. Then, make it accessible through a shared online channel where every worker can have any amount of copies on hand. This method ensures the employees can get the information they need without the need to wait for formal communication with the payroll units or HR department.

8. Strive for transparency with your employees. Whether employees are short-paid by accident or they misunderstand how payroll policies are designed, there can be confusion. These processes should be designed in a way that employees should be able to report any payroll-related problems to the managers with immediate effect before they develop into bigger issues. 

In case a payroll mistake occurs, please try to keep the channels of communication open with employees and explain why the error has happened, what is the reason, and what to do to prevent it from happening again. Along with these measures, customize payroll policies and procedures that explain the payroll process, how employees are classified, how pay is determined, and any other important information. Design it in a way that it can be used consistently throughout the information, whether through an online hub or handbook. Taking into account the fact that employees tend to ask questions often,  make up a list of the most frequently asked questions. An accessible FAQ can help employees get the information whenever they need it.

9. Keep thorough payroll records. Regularly keeping up-to-date and accurate payroll records is a crucial duty for the business, because it lets them see many key indicators like labor efficiency, absent rates, payroll costs, and all the related tax payments, besides being a benefit on the business side in case of a dispute. These payslips however remain a legal obligation to provide. Violations may also result in severe fines imposed by the Department of Labor, the IRS, and state agencies.

Ensure constant compliance with all kinds of the records of the state agencies and the periods they need to be stored. For instance, in line with the FLSA, employers must keep detailed records where the names and addresses of employees, their jobs as well as the hours worked and the wages earned must be saved for a minimum of 3 years. The IRS sets forth all the regulations that require payroll tax records as well as other employee records to be kept for 4 years, in case of any eventual audits. Stated governments can have their specific requirements. Keep information that is legible and documented in a secure space or location that is readily accessible.

10. Always double-check data entry. Unfortunately, payroll mistakes happen. Even the smallest error like pressing one key incorrectly, can trigger many problems and incur tax and labor compliance fines. In addition, it can create unwanted dissatisfaction among the employees who are expected to do the job. Double-checking the payroll data entry may keep companies from complex and time-consuming errors. The provision of correct information and figures can also motivate businesses to develop more confidence and competency in data which eventually leads to better informed decisions in the organizations.

Even before the payroll processing time, check timesheets, payroll calculations, tax information, and benefit calculations. Check carefully every IRS form and other employer documentation. Pay attention to employee details correctly after the hiring, namely full names, addresses, dates of birth, pay rates, tax file numbers as well as any other details relevant to employees.

11. Simplify processes. Collecting all the figures necessary for processing payroll may turn into a burden that every company tries to escape. Nevertheless, payroll is to be timed and there is no room for mistakes. Making the payroll procedure as simple as possible without sacrificing quality can enable the business to save time and money short-term, and boost employee engagement long-term.

It means either assembling a payroll team to take care of this assignment using payroll software programs or in the end just outsourcing that task. They all can help the company to increase the efficiency of operations. For example, payments can be transmitted directly to a bank account using the direct deposit method. 

Payroll software will take on any calculations necessary and will speed up the process and additionally, there is less margin for human errors. Furthermore, payroll outsourcing service providers are constantly aware of the changing fiscal and wage regulations.

12. Use direct deposit. Nowadays, paper paychecks are not welcomed anymore so it may be still a good idea for businesses to replace these with direct deposit which is very cost-effective. The switch to direct deposit shrinks the risk of lost or stolen paychecks, and it also delivers the pay more accurately. With great payroll software in place, employees can even generate their pay stubs electronically and on time.

To use direct deposit you must obtain your business bank provider or payroll service. With this setup, you will now have to get the staff bank account number including its routing information. Consider telling your employees why and how going paperless can be to their benefit if your company offers both paper checks and direct deposit.

13. Invest in software. Through the use of payroll software, it becomes possible to control the overall balance between the number of employees and workloads more efficiently. There are multiple options but the ones that will be developed will mostly focus on eliminating the errors in calculations and, functions like withholding and filing taxes. Automation of this type of process saves time for payroll managers to divide their attention to other work. Payroll software has the capability of simplifying the task of remitting payments through direct deposit.

Pay attention to the payroll software selection process. Along with cost matching, it is important to think about other aspects, including the ease and intuitive nature of the software, employee self-service option, integration with other systems, and the level of process control the payroll department will have once the employee self-service option is available. Choosing a payroll system that has the capability of integration with other important software systems e.g. accounting and human resources department systems, results in more simplified business operations.

14. Automate taxes. The taxation process can be complicated. From the beginning, employees must acknowledge various tax obligations as their earnings and income withholdings indicated on their W-4 forms. The employees have to pay for both social security and medicare taxes, FUTA (federal unemployment taxes), and other state and local payroll or personal income taxes and fees. On the one hand, human error is unavoidable. But with miscalculations and errors, the cost is often very high.

Use a payroll solution or a payroll service provider that features the capability to compute and pay federal, state, and local taxes automatically. In an ideal setup, the payroll system should calculate taxes for each employee’s data from W-4 forms plus any other tax obligations on the federal, state, or county level. This will not only save time and resources but also will protect and secure companies from paying taxes and other important requirements through necessary compliance.

15. Integrate systems. One key advantage of modern business systems is easy connections and integration of software programs between different departments to ensure the necessary view of the company status across the entity. One example is payroll management which can be integrated into accounting and human resources management systems to reduce redundancies in payroll processing. Integration of payroll and accounting systems may help avoid duplication of entries of the same information in both payroll and accounting software. Integration prevents time lags as different databases are constantly updated in real-time. It also offers important business insights such as showing how payroll can affect the cash flow.

When selecting a payroll software solution, consider whether the software can be integrated with other business solutions, which helps to deal with some particular payroll tasks easily. Quite often, these solutions tend to be linked by APIs, but integrated business management suites providing for payroll, accounting, HR and similar other core business solutions are there as well.

How FastLane Group Can Help?

The task of payroll is not easy, in fact, even a small business with fewer employees sometimes struggles to manage it. Attending to diverse tax laws, and wage requirements, as well as individually varying decisions on employee remuneration and wage preferences makes the organization spend a lot of time only on the payroll. With payroll service provided by experts of FastLane Group, both new and old businesses will be able to optimize their payroll systems into one that can increase business success. For more details, contact us now!