25 Employee Payroll Tips for Small Business Owners

1. Establish a Payroll Budget

Eric Czerwonka, Co-founder, Buddy Punch

As your business continues to grow, so will your payroll expenses. It is essential to determine what your approximate budget will be. As a business owner, you are required to match both Medicare and Social Security that is withheld from your employee’s pay. Depending on where your business operates, you may also be required to pay other employment taxes. In addition to fixed costs, you must take into consideration variable costs such as commissions and benefits that might be associated with your payroll, along with time and attendance software. Take the time to sit down with your accountant to determine your budget and make an effort to keep your expenses as low as possible. The lower your payroll expenses are, the higher your profit margin.

2. Integrate With Your Scheduling & Accounting System

Jordan Boesch, CEO, 7shifts

Small business owners who employ an hourly workforce depend on accurate, timely payroll to ensure their staff are engaged and retained. Having a seamlessly integrated system that automatically pushes worked hours into a central accounting system will make payroll management faster, accurate, and more efficient. One of the best investments you can make in your small business operations is in an integrated scheduling and payroll system that ensures staff are paid in a timely fashion. This, in turn, inspires your staff to trust and rely on their schedules and to treat your business like it was their own.

3. Decide Carefully Between Salaries & Hourly Pay

Alex Littner, Managing Director, Boost Capital

Paying your staff a salary can make your payroll much easier to manage, as they always get paid the same amount. However, it might not make sense for your business model or for the type of work your staff are doing. Paying by the hour is more complex, as you’ll need to keep track of how many hours each staff member has worked and then calculate their pay each period. There are plenty of time sheet solutions out there that can make this easier for you to manage, allowing your staff to clock in and out themselves. Many time sheet solutions can also integrate with your payroll software so everything’s kept up to date.

4. Choose Your Business’ Payroll Schedule Wisely

Laurent Sellier, Vice President & Business Leader, QuickBooks Payroll

Small businesses have a lot of options when it comes to how often they pay their employees, and there are a lot of factors business owners must consider when deciding how often to run payroll. Will it be weekly, bi-weekly, bi-monthly, or monthly? That typically depends on the overall size of the company. Smaller businesses that employ fewer workers may be able to get away with a more frequent payroll schedule. However, as your business grows, your needs may change.

5. Stay Compliant With Payroll Laws

Maggie Aland, Marketing & Review Editor, Fit Small Business

As an employer, you need to comply with your state’s labor laws and provide payroll accurately and on time. This task can be challenging as you hire more people with different employment classifications and benefits. Reduce the risk of expensive legal penalties by using Gusto, an all-in-one payroll and HR software. Gusto’s payroll software provides payroll and labor law compliance in all 50 U.S. states, and makes it easy to properly manage paid time off in addition to regular pay. Try it free for 30 days.

6. Set Up Direct Transfer of Payroll Taxes

Sandeep Todi, Co-founder, Remitr

Oftentimes, the payroll tax payments transfer from your bank account directly to a government account. If this is not set up properly, it can end up delaying your tax payments and incurring penalties.

7. Invest in a Payroll Task Manager

Chane Steiner, CEO, Crediful

While many business owners handle payroll and check signing personally, this can end up taking many hours of your time each month. If you consider that your time is money, investing in a task manager is well worth the investment. This will also keep your employee’s information more organized and will make tax time a relative breeze. Additionally, it can manage other things like unemployment and workers’ compensation.

8. Create a Clear Payroll Policy

Jared Weitz, CEO & Founder, United Capital Source Inc.

When bringing on new employees, have them review and sign a payroll policy form that will be easily accessible. Include how and when employees will be paid, what their compensation is, and whether there are any additional considerations (such as sick days, business expense reimbursement information, or commission rates). Having this on file is helpful to ensure both you and your employees understand the payment plan details.

9. Be Transparent & Open Regarding Salary

Siddhartha Gupta, Chief Executive Officer, Mercer-Mettl

Let there be open, honest, and transparent communication in the organization regarding when the salary will be credited, and in case of delays, what’s keeping the payment from being credited. Silence in salary delays can be detrimental to employee engagement and motivation levels. As an organization, let the employees know that you care about their expenses, that you are trying hard, and that you are doing everything possible in your capacity to make sure compensation due is made in time. The best advice for new employers to keep talented employees happy is to stay ahead of employees’ queries regarding salary credit and reach out to them before they reach out to you.

10. Integrate Payroll With Your HR System

Charlette Beasley, Author, Fit Small Business

Once you start hiring employees, recordkeeping becomes one of the more tedious roles of HR. And as these records include information such as benefits and performance, completing this task manually can run the risk of inaccuracy and even delays in payroll. Zenefits is an HR information system platform that provides modular packages to manage HR, benefits, and payroll. Their standard plan offers a robust HR platform with helpful features such as an HR library and customized reporting to assist in your payroll tasks. Visit Zenefits today and try their free demo.

11. Hire Freelance Payroll Staff

David Batchelor, Co-founder & CEO, DialMyCalls

Having a big payroll can be scary for a small company trying to make ends meet. A great option for a company doing payroll is to hire people on a freelance basis doing contract work as 1099s until you have a more stable revenue stream in place. If you are prepared to do payroll, there are many different solutions and service firms that can help you accomplish the payroll operations, whether your team is 10 or 100 (or more).

12. Classify Your Employees Properly

Chris Chancey, Founder, Amplio Recruiting

One of the most important things a new employer can do with regard to payroll preparation is to classify workers correctly. Simple as it may seem, it is ever so easy for new employers to unintentionally misclassify workers, a mistake that has huge tax implications and could get you on the wrong side of the IRS. It goes without saying that tax penalties can put a serious dent on your business’ bottom line. If you are unsure about how to categorize your employees, fill in RS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax, and send it to the IRS for a determination of the correct worker categories.

13. Hire a Reputable Payroll Service Provider

Nicholas Christensen, Founder, Lottery Critic

Businesses in startup mode are busy concentrating on the big picture, like generating income or building their brand. Payroll is neither sexy nor exciting. Setting up payroll for new employees is a no-brainer, but less obvious is the path to paying them. There are many crucial issues to consider—paper checks versus automatic deposit, payroll taxes, FICA (Social Security), federal and state withholding, independent contractors, Forms W-9 and 1099, and so on. Though you pay a bit more for a payroll service, it’s worth it to avoid paying penalties if you make a mistake.

14. Consider a Cloud-based Provider

Eric Rosenberg, Founder, Personal Profitability

One of the best steps any company can take to make payroll easier is to move to a cloud-based payroll provider. These systems allow employees, managers, and owners to view and enter payroll details from their phone, computer, or any other connected device. Even better, they often offer full-service tax filing and payments for every employee regardless of their location, including generating W-2 forms for each worker. Costs are quite reasonable and scale up with your business as you add new workers.

15. Don’t Forget About Account Payables & Receivables

Eytan Bensoussan, Co-founder & CEO,NorthOne

Over 60% of small businesses fail due to poor cash flow management, so it’s crucial for you to stay on top of money coming in and going out. Take the time to regularly check in on your accounts payables and understand the terms. If you’re ever in a tight spot, it’s likely that extending the terms or paying a late fee will have less of a harmful effect than missing payroll. Secondly, check in on your account receivables. Collect payments on time and don’t overextend credit when you’re not in a position to do so.

16. Switch to a Monthly Pay Schedule

Sue Andrews, HR & Business Consultant, KIS Finance

As a small business owner, you may currently pay your staff weekly to help with cash flow, but as you grow, it’s a good idea to consider moving to monthly pay to make the process easier. As long as you have effective systems to capture data (e.g., hours worked, holiday taken), then it takes less time to process on a monthly basis and there are fewer opportunities for errors to occur compared to processing data every week. Of course, if staff are used to being paid weekly, you’ll need to consult with them before making the change. However, you can ease the transition for staff by advancing them pay in the first month, which can then be repaid over the next few months. That way, staff can make the move to budgeting monthly without experiencing any financial difficulties.

17. Consider Hiring Professional Employer Organizations

Jagoda Wieczorek, HR Manager ResumeLab

One way to be able to handle the employee payroll process at a growing company is to start using the services of professional employer organizations (PEOs). Choosing this option equals placing all things that are challenging for business owners in the hands of professionals. Payroll, administrative work in recruitment and onboarding, and handling employees’ benefits are just some of the tasks PEOs can effectively help with. PEOs can also help those smaller businesses, that unlike bigger, corporate companies, are not always able to afford the premium or even basic employees benefits.

18. Track Employees’ Time Worked

Lakshmi Raj, Co-founder & Co-CEO, Replicon

The size of the business is irrelevant; remote and mobile workers have earned a solid place in today’s workforce, and ensuring that they can be tracked with 100% visibility is crucial. Visibility into every minute of employee time in detail is necessary to see emerging patterns hidden within complete data sets. Only then can meaningful adjustments be made that positively affect the company and employee productivity. Small businesses can also utilize flexible, scalable, and cloud-based solutions to enable real-time access to captured time. Allowing for employees to capture real-time information makes all the difference. Rather than waiting for data to come in, managers can use the information they receive as it happens and use it to create the biggest impact on productivity.

19. Know Your Payroll Provider’s Background

Matthew W. Burr, Human Resources Consultant, Burr Consulting, LLC

My advice is to ensure you have a bonded and credible payroll provider that can expand with the growth of the business. Know the tools and resources they provide, ask for references, and hold them accountable. Don’t sign up for a bunch of unnecessary tools or features, I see payroll companies selling canned handbooks that are completely unnecessary. Know the needs and work with a consultant to implement.

20. Check Employee Details for Accuracy

Once you hire an employee, make it a point to check their provided details for accuracy. By ensuring that you have the correct full name, address, tax file number, date of birth, pay details, and start date, you avoid getting overwhelmed by the responsibilities that come with payroll when it’s time to prepare it.

21. Plan for Employee Benefits

With remote employment becoming more popular for businesses looking to hire highly qualified individuals, it’s important to design a plan that not only attracts these employees but also encourages them to stay for years to come. This means setting up the best employee benefits package that will attract the kind of employees that you want. Consider consulting with an expert third-party administrator who can tailor an employee benefits package for your company.

22. Create a Financial Back-up Plan

Remember that as a small business, you work within a budget that’s only as much as you are able to bring in through revenue. If your customers are not able to pay, then you don’t have the means to meet payroll. This makes it crucial for you and for any growing business to stay on top of payments from clients. Build and set aside an emergency fund. Create a good credit control system and be diligent sending out invoices and chasing late payments to maintain a healthy cash flow.

23. Document Your Payroll Process

Documenting your payroll process ensures that there’s continuity in that particular area of your business operations. Training will be easy in the event you have to hire new payroll staff. Include every detail from payroll’s role at the time of onboarding to termination of employees. Finally, make sure these procedures are included in the orientation of new hires.

24. Use a Timekeeping System

Timekeeping is a crucial factor in determining payroll. Those who still use a paper time sheet or electronic spreadsheets as the only basis for timekeeping run the risk of errors and complaints from employees. So consider investing in a timekeeping system that can even save you time and money in the long run. These systems often integrate easily into your current payroll system, resulting in fewer errors in payroll processing as well.

25. Create a Separate Bank Account for Payroll

A separate account for your payroll deposits can help improve transparency to your cash flow. As a small business that’s growing in terms of employees, this small change allows you to work more efficiently with your budget. It will be easier to identify payroll taxes, cost of benefits, Social Security, Medicare, and other payroll deductions so you’re always on top of expenses and ensure that your business stays liquid.