Payroll management is a system for processing employee paychecks (salaries, bonuses, deductions), complying with labor laws, and maintaining adequate documentation. It’s important that businesses learn tips for managing payroll effectively, because it directly affects their financial health. In 2017, the IRS assessed almost $7 billion in civil penalties from non-compliance of employment tax requirements.
Here are 15 tips to help you learn how to manage payroll:
1. Create a Payroll Calendar
A payroll calendar helps employees understand when they will be paid and when timecards are due. It also helps your payroll staff with planning and executing payroll tasks. Most payroll applications like Xero will help you create a payroll calendar, but you can also use a spreadsheet or an Office Suite program to set up one for yourself.
Here are some guidelines to follow when creating your own payroll calendar:
- Use a regular calendar as your guide to help analyze certain dates that might require a certain lag to allow enough time for payroll processing.
- Use colored fonts to emphasize specific information such as early time card deadlines due to a holiday.
- Give managers and supervisors a copy of the calendar so they can distribute to their employees.
A payroll calendar should show all fiscal year pay dates. This simplifies payment processing and reduces employee confusion about when they will be paid and the time frames their paychecks will cover. Once you create a template for the calendar, save it on your hard drive so you can update it when needed.
2. Allow HR Staff to Attend Payroll Training
While payroll processing is part of a human resource (HR) professional’s training, their expertise is more focused on recruitment and employee records management. In order to improve your business’ payroll management process, however, consider organizing payroll training sessions for your HR staff. Although the HR and payroll departments have distinct roles in an organization, they share functions that are crucial for a business’ success.
Some benefits to providing payroll training for your HR staff are:
- Improves collaboration: Many payroll issues are related to HR, so working together would help the payroll and human resources departments use their shared knowledge to come up with more innovative solutions.
- Reduces manual/double work: You can reduce the amount of paperwork your staff prepares by consolidating some reports; it can also make it easier to streamline processes.
- Creates a more cohesive team: If your HR staff has a broader understanding of your payroll team’s procedures, they will be more sensitive to the time devoted to payroll processing.
- Prevents conflict: Payroll training will help prevent misunderstandings between your HR and payroll workers and give all employees more clarity on payroll policies.
Your HR team’s deeper understanding of payroll policies will help diffuse some of the pressure the payroll staff deals with when communicating with employees. This eventually improves working relationships and boosts the overall mood inside of the office.
3. Stay Updated on State/Federal Tax Procedures
It’s important for employers to stay on top of their tax obligations and any changes in state and federal reporting requirements. Changes can occur for a variety of reasons including business relocation, employee relocation, and hiring remote employees. When this happens, it’s the employer’s responsibility to gather and update the information they need to compute payroll and taxes accurately.
Businesses should have employees submit a W-2 form and file it with the Social Security Administration by mid-April of each year. Doing this helps the payroll department keep up with the changes that affect federal and state deadlines, as well as with calculating and correcting hours, wages, tax holdings, and benefits. Failure to pay employer- and employee- withheld taxes accurately can result in penalties.
4. Standardize the Internal/External Turnover Process
A big reason that payroll staff turnover is painful is because all companies have their own unique payroll processing intricacies; these small details can take significant time for new hires to learn. In order to minimize the negative effects of losing team members to other companies, moving them to different roles, and temporarily filling positions when employees go on leave, you should consider ways to help standardize your turnover process.
Some of the ideas you can implement to make your internal and external turnover process go smoother are:
- Promote internally: Consider promoting internally first to help minimize the learning curve of new hires.
- Implement a buddy system: Use a buddy system in which each payroll team member trains another on their task.
- Maintain standard process/role documentation: Include a process flow chart and schedule in your payroll system documentation to help make managing roles easier when promoting payroll staff in the company
- Update payroll templates: Always update your payroll templates, and save them in a drive accessible to everyone on your payroll team.
Creating a standard payroll process will improve your payroll team’s productivity. It can also lower your risk of making payroll mistakes, making your payroll department more reliable.
5. Automate Your Payroll Process
Processing payroll takes a lot of time and money, and when done manually, is easily susceptible to mistakes that can result in severe penalties. This is especially true for a growing business that has a steadily increasing number of employees. With limited HR and payroll staff, payroll processing can become a challenge. Automating your payroll process is the easiest way to keep up with time-consuming tasks.
Intuit Payroll is a payroll software that works with the full suite of QuickBooks products to create paychecks, calculate payroll taxes, send direct deposits, and even prepare, file, and pay federal and state payroll taxes. Small businesses can choose between a self-service option that allows them to run payroll in-house or full-service payroll where Intuit accountants can process for businesses who don’t have the time or the expertise. You can sign up today and save up to 50%.
6. Avoid Borrowing From Payroll Tax Funds
It might be tempting to dip into your payroll tax funds if your business is short on cash. However, borrowing from your tax fund would be a serious mistake that you should avoid at all costs. In the course of running a business, poor decisions like this can easily be overlooked until it’s time to make process your payroll tax payment. You could end up not having enough money to replace the borrowed funds and risk not being able to pay the IRS.
To avoid making this mistake, consider opening a separate payroll account for your collected and contributed taxes. This will help ensure you don’t use your payroll taxes to pay for other business expenses. You can also create a cash reserve for your business. If you become short on cash, you can access your emergency funds rather than payroll tax funds.
7. Distribute Payroll Duties Among Your HR Staff
If one or two payroll processors are having problems processing payroll in a timely manner, consider reallocating their payroll duties. You should document this change of duties and create or update your written payroll policies, so the new process is communicated clearly. It’s also a good idea to review the new processes and policies regularly. Separating payroll tasks will not only relieve some stress from your individual payroll staff but should help with meeting deadlines, handling volume, increasing accuracy, and preventing fraud.
Payroll responsibilities that should be performed by multiple people versus one include verifying and processing changes to payroll and personnel data, approving payroll journal entries and changes, reviewing and approving monthly payroll reports, and distributing paychecks.
8. Observe Transparency in Your Payroll Process
Problems often come about as a result of employee misunderstandings of the payroll system. This happens most often in organizations where pay policies are either not accessible or inadequately presented to employees. Many payroll issues such as underpaid taxes or employee misclassifications (contractor vs employee) can be corrected by instituting a wholly transparent payroll policy.
A transparent payroll policy should include information on:
- How the payroll process works
- How employees are classified
- How salaries are determined
- Employee reporting responsibilities
- Company procedures for handling payroll mistakes
- Levels of vacationable earnings
- The manner in which wages and promotions are calculated
Put the policy in writing, display it prominently throughout the workplace and make sure each employee has a copy. You should also update your employee manual accordingly.
9. Document Your Payroll Process
Documenting your payroll process is an important step in managing payroll. This strategy helps when analyzing and auditing your payroll system as it highlights each step and makes it easier to identify weak points in the process. Once you develop a payroll process that works best for your business, document these procedures, and share them with the payroll team to help ensure each member of the payroll staff understands their role.
Maintain a standard payroll processing manual for the payroll department. This should include all the payroll processing steps as well as the reporting and check handling process. It will also be useful to have instructions on how to process payroll manually in case of emergencies. Document the steps for printing and filing payroll registers and tax reports, along with the names of the individuals to who you will be handing the paychecks and pay stubs.
10. Use Employee Scheduling & Time Tracking Software
Accuracy is important when processing payroll, and it all starts with properly monitoring employee attendance. Even the simplest error at this stage can create problems that result in significant civil penalties and poor feedback for the business. Using a scheduling and time tracking software will help save time, increase efficiency, and improve your payroll staff’s productivity, which ultimately ensures the accuracy of your payroll reports.
Homebase offers employee scheduling and time tracking software that integrates seamlessly with most payroll providers for quick and simple migration of your employee time data. It allows you to automatically calculate overtime and manage employee leaves such as paid time off (PTO). It also features a downloadable mobile app as a tool to communicate with employees to alert them of updates you make in their work schedule. They can also clock in and out through their smartphones. You can sign up free today without using a credit card.
11. Audit Your Payroll Process
It’s not unusual to hear of occasional complaints about payroll computations. However, frequent incidence is a clear indication for the need to conduct regular audits of the entire payroll process. This is especially true for companies that still make use of a manual timecard system as they are exposed to high risk for discrepancies. Automated systems can also be affected by data entry errors like incorrectly recording a new employee’s tax status (married vs single) or entering old pay rates.
Steps you should follow to ensure an effective audit include:
- Verify and reconcile the accounting, payroll, and cash documentations to make sure the dollar values match across all records.
- Test plugins or add-ons to ensure that payroll software is properly integrated with your time and attendance system.
- Install a check-in system and/or biometric sign-in hardware to automatically note the times an employee logs in for work.
If employees raise concern about or having difficulties complying with payroll policies, then it’s time to review your policies (and documentation) for accuracy and clarity. It’s important that employees understand their role in the payroll process so they can complete tasks like time sheet submission or timecard use properly and on time.
12. Hire Qualified Payroll Staff
Payroll staff must be able to handle the demands of their job, or they risk making errors, incurring costly compliance penalties, and ultimately, experiencing job dissatisfaction. It is therefore crucial for businesses to build a payroll team with the skills required to handle the level of payroll tasks your company needs. Keep in mind that this doesn’t only refer to candidates with glowing credentials but also someone who can learn quickly and adapt to your work culture.
There are no essential “industry standard” qualifications for personnel entering payroll positions, but you can always look for relevant payroll accreditations that prove their math skills. Meanwhile, experience, adaptability, and integrity are also important qualities. Hiring the right payroll staff ensures all your business’ payroll responsibilities will be taken care of, and being able to identify candidates with the right skills can make all the difference.
13. Complete Onboarding Paperwork on Time
Make sure you and new hires complete all of the employment forms you’re legally required to submit. These forms will provide you with new hire data so that you properly classify and compensate employees. Legislation may differ based on your state or county, so make sure you check your state and county websites in addition to federal for all paperwork and deadlines.
The most common types of employment forms employers are expected to complete are:
- W-4 form (or W-9 for contractors)
- I-9 Employment Eligibility Verification form
- State Tax Withholding form
- Direct Deposit form
Additionally, if you offer employee benefits, you will need to give each new hire paperwork that describes the terms and conditions of those benefits and, in some cases, request that they sign.
The most common employee benefits are:
- Life and health insurance
- Mobile plan
- Company car
- Stock options
- Retirement plan
- Disability insurance
- Paid time off/vacation policies (including any paid holidays)
- Sick leave
- Employee wellness perks (e.g., gym memberships)
- Tuition reimbursement
Onboarding documents are important to complete when new employees start working for you, and they’re crucial to ensuring you manage payroll correctly. It’s best to create an onboarding schedule that will help you complete these forms on time so you avoid errors in the future.
14. Solicit Feedback About Payroll Procedures From Employees
Never assume that employees fully understand your company’s payroll procedures. Make it a point to ask and encourage employees to ask questions as well. Communication will help identify areas of misunderstanding such as improper time sheet submission or issues in the use of time cards. Inviting suggestions on improvement will encourage support from your staff after changes are implemented.
Start by holding an all-staff meeting dedicated to payroll issues. It’s likely that employees will want to participate since everyone is directly affected by the process. At this meeting, ask employees what payroll processes work for them and what areas need improvement. You may be surprised by the creative suggestions you receive. You should also consider issuing a companywide survey to determine the level of employee satisfaction with current procedures.
15. Outsource Your Payroll Tasks
It’s important that businesses are able to pay employees accurately and on time to avoid problems related to staffing. This can become overwhelming for a growing company where tasks like payroll continue to take more time and effort. Rather than managing payroll in-house, work with professional employer organizations (PEO) to mitigate the risks and cut down on the costs of running payroll yourself.
Trinet is a PEO that gives you and your company access to premium, big company benefit options—regardless of your size—with industry-tailored, full-service HR solutions that help you grow your business. It also offers a mobile app in addition to a portal you can use to manage unemployment, time off, and expense reimbursement, saving you and your employees time and frustration. By visiting the website, you can get a free quote in minutes.
Being able to accurately deliver employee paychecks is an immediate representation of your brand and signifies your ability to maintain high employee retention. Make sure that learning how to manage payroll is at the top of your list for things to do well. By developing a payroll strategy that supports your culture, you’re guaranteed to stay on top of payroll tasks all the time.
Want to share your own tips for managing payroll? Share them with us in the comments.