Payroll management is one of the most important activities, regardless of the size of your business: without it, your employees and contractors will not receive their salaries and benefits. However, legitimate frustration aside, it’s also easy to make tax mistakes. In this article, we will go over the best practices for small business managers to properly manage payroll.
Payroll is usually the responsibility of the business owner if there is no designated payroll manager. The person who manages your payroll department, aka you, needs analytical skills, a meticulous eye for detail, and the ability to adhere to complex procedures while maintaining the personal touch and excellent communication skills. You will need to keep up with the constant changes within the company and outside at the legal level, which can be difficult if you are doing this in parallel with your other activities as a founder.
Key activities under the payroll umbrella:
● Calculating employee salaries, withholdings, and taxes
● Direct deposit and automatic signatures
● Providing employers with W-2 and 1099 forms while processing payroll taxes and filings
● Administration of retirement plans, FSAs, and HSAs
● Keeping track of vacation, sick days, and overtime
● Meeting all federal, state, and local reporting requirements
Cash flow needed for payroll
Good payroll management is based on creating and planning for adequate cash flow. The first step is to calculate payroll hours. Once you know what your monthly budget needs to be for the year, you can plan for the expenses associated with it. Whether you are a full-time payroll professional or a sole proprietor, you should set your schedule well in advance, so you can avoid missing important deadlines — both towards employees and authorities.
Avoid employee misclassification
Although the activities of employees and contractors in support functions are obvious to you as a founder, the tax authorities also want to know exactly what your collaboration is all about. Classifying your employees is therefore especially important so that you can avoid not only miscalculation of tax withholding and ACA hourly reporting but also penalties for mismanagement.
The best way to comply with all applicable regulations is to implement online payroll software. Not only is it a payroll calculator, it usually provides alerts to help you meet important deadlines, makes it easy to retrieve historical documents, and gives you a simple overview of your company’s payroll in the event of an audit.
The best software in the cloud is no substitute for precision work, and that’s hard to do while doing the groundwork. As a sole proprietor, perhaps with 1–2 employees, it may even seem more efficient to manage payroll in-house. However, in an ever-growing organization, outsourcing or creating a standalone payroll specialist position may be the best solution. Not only does this reduce risk, but it also ensures that you have time to integrate the latest trends and solutions into your processes.
At IOOGO, we have made life easier for countless entrepreneurs by supporting them with accounting, payroll, and other financial areas. If you feel that your processes could be more efficient, or if managing payroll is becoming increasingly difficult on top of your existing tasks, please contact us — we’d love to help.