For small businesses with employees, payroll is a significant part of operations—both financially and administratively. Payroll tasks overlap with complex employment laws and confusing tax rules and can affect various business areas. Understanding overall payroll statistics and trends can help companies estimate when certain workforce changes might begin to affect them, so they can prepare and learn more innovative solutions that might help lower payroll expenses, boost employee morale, and reduce the hassle.
Employee Payroll Statistics
1. A quarter of all workers have had paycheck errors (Intuit)
In addition to errors, paychecks are more likely to be late in companies with 20 or fewer employees. Not only could this make for unhappy employees, but it could also lead to costly fines. Any paycheck miscalculation can affect taxes since employers base their tax withholdings and payments on the amount they pay employees.
2. 49% of workers will begin a new job search after two paycheck errors (Kronos)
Employee engagement is fragile and workers have little tolerance for mistakes relating to their pay. Common payroll mistakes employers make are not compensating employees for the correct number of hours, miscalculating payroll taxes that could cause the employee’s next check to be short, and paying the wrong rate, especially when new pay raises go into effect.
3. About 65% of workers live paycheck to paycheck (American Payroll Association)
Not only do paycheck errors make employees more likely to leave a company, but they also put them in actual financial distress. When employees cannot meet their financial obligations, they may have trouble focusing and producing high-quality work. More companies are offering employees the right to access their pay as they earn it via on-demand pay options that many payroll services provide.
In a survey of more than 20,000 individuals across the US, 63% would have a difficult time paying bills if their paycheck was delayed.
4. 93% of employees are paid through direct deposit (Nacha)
Although still options for some businesses, paying employees in cash and paper checks aren’t as common. Direct deposit allows employees to be paid electronically, reducing the risk of fraud, theft, or loss of paycheck. It’s also usually free for many small businesses through their payroll software/service provider. If your company isn’t offering direct deposit payments to your employees, you risk losing access to potential new employees who don’t want to deal with paper paychecks.
5. Only 25% of workers have updated their W-4 (Association of International Certified Professional Accountants)
In 2019, the IRS updated Form W-4 to enable more accurate withholding information. If employees don’t update this form, they (and you) could be paying inaccurate taxes, creating more work at tax time and potentially higher taxes for them.
6. There are 57.3 million gig economy workers (Statista)
Hiring gig workers requires you to ensure that you are classifying the workers correctly and paying them in accordance with your state paycheck laws. Partnering with gig workers can help your business, but you need to pay attention to the legal issues involved.
Company Payroll Statistics
7. 25% of small businesses use pen and paper to track finances, and 45% don’t have their own accountant or bookkeeper (Clutch)
Not only is this more time-consuming, but it’s also more likely to result in mistakes and errors. These can cause costly government fines and employee lawsuits.
Just over half of small business owners surveyed said they had an in-house accountant or bookkeeper on staff.
8. 60% of small business owners say cash flow has been a problem (Intuit)
Clients don’t always pay invoices on time or at all. This hurts small businesses and their ability to make payroll when they cannot accurately anticipate cash flow.
9. 77% of small businesses say income taxes create extra burdens (National Federation of Independent Business)
Sometimes, these extra burdens force small businesses to hire additional finance employees or outside vendors to help with payroll and tax calculations. If they don’t, the business may find they’re inaccurately calculating and paying taxes.
10. Almost 70% of small businesses say payroll taxes are a moderate or significant burden (National Federation of Independent Business)
Taxes bog down every small business. But according to small business owners, payroll taxes are among the biggest tax burdens they face. Calculating, paying, and budgeting for payroll taxes takes several hours per week.
11. Up to 30% of companies misclassify employees (National Employment Law Project)
Calling employees independent contractors to save on taxes is something 10% to 30% of employers do. If caught or sued, these companies face back taxes, missed overtime pay, and fines.
12. In 2020, the IRS assessed about $6 billion in employer penalties (IRS)
The IRS assessed civil penalties to companies for miscalculating or missing payments on their employment taxes. General business income tax miscalculations, even innocent ones, can result in IRS penalties.
13. 45% of small businesses outsource payroll (National Small Business Association)
Because small businesses can spend several hours per week and hundreds of dollars per month running payroll internally, many choose to outsource payroll to get time back. Using a payroll service also makes tax calculations that much easier.
In a survey of nearly 1,000 small business owners, 45% said third-party services prepared their payroll.
Bottom Line
Today’s workforce is changing. But paying employees, gig workers, and independent contractors remains a vital piece of the puzzle. Not knowing payroll trends can leave your company behind and exposed to legal liability. Formalizing your processes internally or partnering with an outsourced payroll service can be easier and more cost-effective for your small business.
