Payroll can seem intimidating, especially if your business employs many people, but with a streamlined process, it doesn’t have to be. We’ve highlighted some of the best-practice payroll tips for small business owners.
Benefits of Implementing Good Payroll Practices
Following good payroll practices helps you to avoid costly errors, such as:
- Classifying workers inaccurately
- Miscalculating overtime wages
- Doing payroll late
- Paying an incorrect tax rate
- Improperly classifying exempt workers
Good payroll practices also help you to complete common payroll tasks like:
- Calculating payroll
- Paying employees
- Filing payroll-related government forms
- Submitting withholdings from employee pay
- Submitting employer-owed payroll taxes
- Filing end-of-year payroll taxes and reports
Use Reliable Payroll Software
If you’re not outsourcing payroll tasks, you’ll want to leverage reliable payroll software. There are plenty of payroll software packages to purchase, from Quickbooks to Payroll Mate. Leveraging payroll software lowers the potential for errors — which can be costly — and saves time.
Maintain Accurate Employee Records
The first step of good payroll practice is good recordkeeping. You need to maintain and classify employee payroll records. That means having accurate data on hours worked, total payments, rates of payment, and pay period dates. Your records should also contain any overtime hours worked by employees.
Stay Up to Date on Regulatory Changes
Stay up to date on regulatory or legal changes as it pertains to payroll. If you’re not following the latest guidelines and an employee files a complaint, it can lead to substantial fines and, potentially, back wages to an employee.
The most common legal considerations for payroll:
- Tax withholding and reporting: new employees must sign a W-4 form to declare their tax withholding calculations
- Missouri wage and hourly laws: You can find more information on the Missouri Department of Labor.
- Garnishment: Wage garnishment occurs to employees with child support, outstanding debts, or bankruptcy. As a business owner, you must withhold a certain amount each paycheck and follow a quarterly reporting procedure.
The most important regulatory acts to remember:
Davis-Bacon Act
The Davis-Bacon Act requires businesses engaged in public works projects to pay their employees a prevailing wage. Missouri’s Prevailing Wage Law sets a minimum wage for public works projects valued at over $75,000.
Fair Labor Standards Act (FLSA)
The FLSA sets overtime rates, minimum wage laws, child labor laws, and payroll recordkeeping requirements.
Federal Unemployment Tax Act (FUTA)
FUTA is a payroll tax that offers unemployment assistance to workers who have lost their job to no fault of their own.
Federal Insurance Contributions Acts (FICA)
FICA is an employment tax that funds Medicare and Social Security.
Equal Pay Act (EPA)
The EPA was intended to prevent wage discrimination based on sex. It requires men and women to be paid the same amount for the same job.
Implement a Timekeeping System for Employees
Accurately track employee work hours with a timekeeping system. The best way to implement a time tracking system is to make a plan and transition in stage.
Communicating the benefits of your time-tracking system can get buy-in from your team. If they have questions about it, answer them directly.
It’s also good practice to delegate the implementation process to other staff members. Choose someone from management to implement the time-tracking system.
Conduct Regular Payroll Audits
Audits or periodic reviews of your payroll system are a great way to identify discrepancies in your data. Audits help you to minimize errors, deter fraud, and stay compliant with tax law.
Depending on your organization’s size, an audit can take a few minutes or a few weeks. You’ll need to decide how often you want to audit payroll—monthly, quarterly, yearly, or every pay period. As you conduct your payroll audit, you’ll want to pay special attention to wage payments, tax withholdings, and deductions.
Separate tasks among various team members to avoid fraud. One manager or HR specialist should review time tracking while the other reviews payable wages. This is also the perfect time to outsource your payroll to an expert third party. It will save you time.
Offer Direct Deposit & Electronic Pay Stubs
It’s easier to track payments that are scheduled for direct deposits than a series of checks. It not only reduces administrative overhead from writing and mailing countless paper checks, but it’s also a convenient option for both employees and employers.
Establish a Failsafe System
Like anything in life, things can go wrong. And when they do, you want to be prepared. Your contingency plan can be put into a handbook for ease of reference.
You’ll want to list your payroll processes and procedures while being descriptive and succinct. Having this on hand will aid you in jogging your memory should the need arise.
Furthermore, establishing a solid payroll policy and writing it down can help you mitigate potential errors. Common errors can include miscalculating pay or entering incorrect information into the payroll.
Your payroll policy should include pre-tax and post-tax deductions as well as state and federal taxes. Make sure to list any deductions necessary for employee benefits, taxes, or various other fees, along with descriptive explanations. Having a spot where all this information is readily available will be a good reminder and help you avoid errors or missed deadlines.
Get Payroll Tax Help with Abacus CPAs in Springfield, MO
If you’re looking to outsource all of the tedious aspects of accounting, whether it’s bookkeeping, tax accounting, or company payroll, hire the professionals at Abacus CPAs. Contact us today at 417.823.7171.
