When it comes to running a small business, there are lots of frustrations, and payroll probably falls pretty high on your list. As the head of your business, you probably want to spend your time making the magic happen—not tied up in monotonous administrative details. Now more than ever, small business owners need to focus on keeping their businesses going through the pandemic, not getting tripped up in payroll details. But running payroll doesn’t have to be a headache. Consider these six questions as you evaluate your payroll process to make sure it’s as painless as possible.
1. Does my payroll schedule work for my business?
How often you pay your employees has a substantial impact on your operations, cash flow, and employee satisfaction. While different states require different minimum pay periods, the most common U.S. payroll frequencies are weekly, biweekly, semi-monthly, and monthly. When considering how often to run payroll, it’s important to consider the type of employees you employ (salaried vs. hourly), and the time and cost burden running payroll places on your business. You should also consider what works best for your employees—hourly workers generally prefer to be paid more frequently, as their income is dependent on the hours they are able to work in a given pay period. Salaried employees, however, can calculate how much they will receive each paycheck throughout the year, so they are less likely to need more frequent payroll. Whichever cadence you decide on, make sure that it does not place an unnecessary burden on your business, as paying employees can be costly and time consuming.
2. Do I need to upgrade my payroll software?
While payroll may seem like an easy place to cut costs, when you consider the time and energy it takes to figure out the complicated calculations, not to mention potential IRS fees and fines, the costs quickly outweigh the benefits. Instead of relying on pen and paper, look for online payroll platforms that handle everything from payroll processing, to human resources, tax compliance, time and attendance, PTO management, and even benefits administration. Online payroll software can handle all the complex HR tasks a traditional payroll provider does, but without the prohibitive costs or loss of control of a full-service partner. Many small business owners have had frequent changes to the size of their staff due to the pandemic. An online payroll platform makes it easy to quickly make changes, saving you time during this challenging period.
3. Do I need to audit my payroll software?
Yes. While an automated payroll system is extremely beneficial in staying compliant and organized, you cannot completely rely on it to reveal issues. Your system is fast, but make sure to keep an eye on things—double check for misclassified employees, employees who are no longer working at your business, or accidental time tracking errors made by employees. Running manual payroll audits can help you identify miscellaneous issues, saving you time and money in the long run.
4. What about changing tax requirements?
As a business owner, you’re responsible for the proper administration, calculation, and payment of payroll taxes every time you run payroll. This involves federal and state income tax, Medicare, Social Security, and unemployment. Certain cities and jurisdictions might also have local income and related taxes, so it’s important to stay informed on tax regulations. Stay on top of compliance laws to avoid any costly IRS tax fines.
5. When should I pay and file taxes?
You are also responsible for the year-end components of payroll—summarizing, reporting, and filing all the payroll taxes withheld from employees throughout the year. Before you file any documents, ensure your documents are within IRS compliance standards. It’s important to double check your workers are classified properly, and guarantee your business has an employer identification number (EIN). By paying close attention to tax details each time you run payroll, you can avoid getting hit with hefty fines at year-end.
6. How long should I keep tax records? And which ones?
Unfortunately, just because you did your best to avoid any tax mistakes by staying organized and following tax compliance, doesn’t mean the IRS won’t audit you. The best way to be prepared for an audit is to keep quality records of your payroll and tax filings each year. If you’re able to check your records, present copies, and verify compliance, these issues can often be remedied. It’s recommended to keep all your payroll and tax documents for a minimum of four years—the IRS rule is four years for employment records and three years for taxes. Luckily, if you’re using a cloud-based payroll software, all your records will be securely stored electronically, so you can easily access them.
No matter the size of your business, efficient payroll is critical to your success. Depending on how you answered these questions, it might be time to consider implementing a new payroll system. Learn more about Beyond Payroll as you evaluate switching payroll companies.