How To Manage Payroll: Expert Tips For Business Owners

Businessman's Hand Giving Cheque Over Glass Desk

Employees are key to a successful business. And if you want to have a great team, you must manage payroll well.

Managing payroll requires correct categorization of your employees, effective timekeeping systems, and strict attention to labor laws.

As a business owner, you’ll need to set up a few things first and make several decisions about your employees, like hourly vs. salary and payroll schedule. Once you’ve done that, it’s time to follow our expert tips to help you manage payroll like a pro!

Table Of Contents

The Importance Of Managing Payroll

Woman managing payroll

Managing payroll is crucial for running a successful business. Your employees will need to get paid for their work, and the only way you’ll keep them motivated is if you’re paying them on time and in the right amount.

And it’s not only the employees that require you to manage payroll effectively; the law does as well.

Federal labor laws require precise recordkeeping, as well as minimum wage, overtime, and child labor standards to be met. State laws may have additional requirements.

On top of that, employers must keep track of withholding and pay payroll taxes for their employees, ensuring such payments are both timely and accurate.

If you don’t have a good handle on payroll, you can subject your business to fines and even lawsuits.

How To Manage Payroll: Getting Started

Before you start hiring employees and managing payroll, you’ll need to get a few administrative tasks done first.

Employer Identification Number

Employer Identification Number to manage payroll

As a business owner, you will need to obtain an Employer Identification Number (EIN) in order to file the necessary forms for managing payroll. The EIN is a unique number that identifies your business, much like your Social Security Number identifies you.

This number is issued by the federal government and is needed on any federal and state paperwork, like business licenses and payroll taxes. It should be noted that some states require businesses to obtain their own state identification number as well.

Payroll Policies And Processes

When getting ready to manage payroll, it’s smart to establish your company’s payroll policies and processes.

Your employee handbook should include a section that establishes how employees account for their hours if they’re hourly, as well as overtime payments. It should also specify the pay period, how benefits work and are accounted for, and anything else payroll-related.

This will make the process transparent and predictable so your employees know what to expect.

Payroll Systems

It’s best to set up a payroll system before you start paying your employees. There are several choices depending on how large your organization is and the level of in-house expertise you have.

Processing Payroll Manually

One choice in processing payroll is to do so manually. This means you are tallying hours and making all payroll calculations yourself.

Although this is an inexpensive solution, it’s time-consuming and mistakes are likely, resulting in an employee’s loss of trust or even legal trouble.

Using Payroll Software

Another option is to use payroll software. This can be a good solution because once you set an employee up in the system, the software will automatically deposit their payroll per the schedule you choose and submit payroll taxes.

Engaging A Third Party

Another option for managing payroll is to engage a third party. This external professional will take care of everything — all of the administrative work of setting up, tracking, and paying both employees and payroll taxes.

Salary Status: Hourly Vs. Salary

Stay organized to manage payroll

Another important factor to consider before bringing on employees is how they are going to be paid — hourly vs. salary. Federal and state labor laws establish which employees should be paid hourly and subject to minimum wage and overtime.

This is important because miscategorization can result in owing back overtime pay or even subject you to lawsuits.

Pay Schedule

Before paying employees, you need to establish a payment schedule, such as weekly, bi-weekly, monthly, or any other time period that makes sense for your business.

Recordkeeping Process

In order to comply with federal and state law, it’s essential to keep accurate records of your employee’s hours, wages, payroll, and withholdings.

Timekeeping System

You’ll want to set up an easy-to-use timekeeping system so that you can plan and track both employee hours and productivity. Although your system can be manual, like with paper timesheets, these are prone to errors and can be time-consuming to compile and verify.

Software solutions like Inch, on the other hand, can be welcome additions when it comes to timekeeping. With Inch, you can schedule, track time, and manage tasks and labor costs, making workforce management simpler and easier.

How To Manage Payroll: Expert Tips

Now that you’ve got everything set up and all of the important decisions made, it’s time to manage payroll like a pro. Here are a few of our expert tips.

Woman learning How To Manage Payroll

Research Wage Laws

Our first tip is one of the most important: Have a good understanding of both federal and state wage and labor laws that apply to your business. These do change, so keeping abreast of the latest developments will help your business run smoothly.

Train Your Team

Sharing is caring. Be sure to share all of your knowledge and train your team on applicable laws and regulations around employees and managing payroll.

In addition, as you onboard new hires, communicate the policies and processes of payroll right from the beginning to avoid any misunderstandings and confusion.

Establish A Payroll Administrator

Running a business requires you to have a handle on a whole host of things. Having a payroll administrator can help you keep all things payroll-related straight.

If you can’t afford to hire one right away, at least establish a point person for the task within your current team.

Engaging or assigning a payroll administrator will relieve you of the day-to-day burden and allow you to oversee the process rather than always be knee-deep in it.

Make A Payroll Calendar

Calendar for managing payroll

You’ll want to create a payroll calendar to ensure that you are paying your employees on time, as well as any taxes that you owe. A good payroll management software will often have this as one of its features, making it easier for you to track.

Be A Great Recordkeeper

Given the importance of payroll and accurate information, set up an effective record-keeping system. Federal and state laws require that you be diligent about tracking hours, withholding, and payroll payments made.

This information will have to be kept for a period of time, in case anything comes up that will require documentation.

Secure Your Data

When you’re a business owner, you end up with a lot of sensitive information about your employees, including their social security numbers.

Establish strict controls around this information, including who has access to it and how it’s maintained and stored.

Keep An Eye On Cash Flow

When you manage payroll, you will see how much money is being spent on staffing each pay period. You should be aware of spikes in hours and overtime, and be sure that these expenses are sustainable compared to income.

If you see a problem or a pattern that gives you pause, you can speak with managers and adjust operations to avoid any cash flow issues.

Audit Regularly

For anything important, it’s always good to get an outside eye. By conducting periodic payroll audits, you can get ahead of problems with recordkeeping or any other administrative systems.

Payday Perfection

Man writing a check

As you can see, managing payroll for a business is no easy task. It requires a lot of information and decision-making prior to even onboarding your first employee.

Now you have a host of expert tips that can help you manage payroll like a pro — including knowing the law, training your team, and conducting internal audits.

Many potential pitfalls may also be alleviated by using workforce management software for keeping schedules, tracking hours and productivity, and managing labor costs.

Inch is that all-in-one solution for hourly workers that will save you hours while making your payroll more accurate, giving you, the business owner, more time for building your business.

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