15 Tips for Managing Payroll Effectively

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 2020, the IRS assessed nearly $31.4 billion in civil penalties from non-compliance with employment tax requirements.

In our Tips for Managing Payroll Effectively video, part of our Payroll Video Library, we discuss these tips in more detail and give you the best guidance to help make payroll as simple and painless for small business owners as possible. Check it out below:

Here are 15 tips to help you learn how to manage payroll:

1. Create a Payroll Calendar

Payroll calendars help 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 software, like Gusto, will automatically create a payroll calendar for you once you’ve set up your pay schedule, but you can also use a spreadsheet 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 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 it to their employees.

An effective payroll calendar should show all pay periods for the year. 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 processing payroll is part of a human resource (HR) professional’s training, their expertise is more focused on recruitment and employee records management.

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 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 simplify 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 payroll staff’s pressure when communicating with employees. This eventually improves working relationships and boosts the overall mood inside of the office.

Check out our top ways to get payroll training to give yourself a head start.

3. Stay Updated on State/Federal Tax Procedures

Employers need to stay on top of their tax obligations and any changes in state and federal reporting requirements. Changes can occur for various 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 it needs 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 and calculate and correct hours, wages, tax holdings, and benefits. Failure to pay employer- and employee-withheld taxes accurately can result in penalties.

4. Standardize Turnover Processes

A big reason payroll staff turnover is painful is that all companies have their own unique payroll processing intricacies; these small details can take significant time for new hires to learn. 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 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 where 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.

If you’re interested in using software to help you better manage your payroll process, consider Rippling, one of the highest user-rated software on the market. Rippling is an HR management software that allows you to manage your employee payroll, benefits, third-party apps, and much more all in one place. Rippling makes managing your employees simple. Plus, sign up before December 1, 2023, and your first month is FREE!

Visit Rippling

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 running a business, poor decisions like this can easily be overlooked until it’s time to 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.

Consider opening a separate payroll bank 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 arise because 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 (earnings on which vacation pay is calculated)
How wages and promotions are calculated

Put the policy in writing, display it prominently throughout the workplace, and ensure 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 payroll staff member 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 processes. 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 whom 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 can create problems that result in significant civil penalties and poor feedback for the business.

Using 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.

11. Audit Your Payroll Process

It’s not unusual to hear of occasional complaints about payroll computations. However, frequent incidence is a clear indication of the need to conduct regular audits of the entire payroll process. This is especially true for companies that still use 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 have difficulties complying with payroll policies, then it’s time to review your policies (and documentation) for accuracy and clarity. Employees must understand their role in the payroll process to complete tasks like time sheet submission or timecard use properly and on time.

Check out our guide to doing a payroll audit to help you evaluate your payroll process.

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 this refers to candidates with glowing credentials and 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, so 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
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.

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 timecards. 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. Employees will likely 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 in which tasks like payroll continue to take more time and effort.

Rather than managing payroll in-house, you can utilize one of the many payroll outsourcing options. Payroll software allows you to still be involved in the process without having to calculate paychecks and taxes on your own. If you use payroll software, you’ll be responsible for managing the system and processing each payroll; however, it will automatically do the calculations and file and remit taxes on your behalf so you don’t have to worry about it.

For a more hands-off approach, you can consider using a professional employer organization (PEO). A PEO acts as the employer of record for payroll and tax purposes. Depending on which provider you choose, you may still be the one pushing through the payrolls, but overall, PEOs will take most of the HR and payroll functions of your business off your plate.

If you’re not sure which one is the best solution for your business, consider using one that has the flexibility to change overtime. Rippling allows you to easily toggle between its traditional software and PEO solutions, making it a great solution for businesses as they grow and scale.