For many small business owners, payroll can be a small business owner’s biggest monthly expense. Covering payroll can be make or break for your business – if you don’t pay your top performers on time, they’ll leave. And even if it’s a one-time issue, it could impact your reputation and ability to attract new talent. On top of that the workplace is extremely competitive so having adequate capital to pay larger salaries can be the difference between success and failure of any company.
If you pay your employees a salary, it’s easier to predict your payroll obligations. But with hourly workers, like in the retail or restaurant industries, payroll is variable. The unpredictability of hours worked can make it harder to manage on some businesses.
If you’ve been struggling with payroll management, here are the top five tips!
1. Standardize Your Payroll Process
When you started out, you might have cut paychecks or paid out commissions whenever someone asked for a check or cash flow permitted. But operating on an Ad Hoc basis can cause a lot of unnecessary headaches. It also makes it harder to budget and know when payroll is coming.
Standardizing the payroll calendar will help you keep on top of your payroll obligations. Decide whether you’ll pay weekly, bi-weekly, or monthly. Determine when to process any commission checks. That way, you’ll know when you need the $15,000 for payroll every Friday and can plan for it in your budget.
While employees may grumble when you first institute changes, ultimately a standardized process benefits them, too. When they know when they’ll be paid, they can budget and better plan their life.
2. Classify Workers Correctly
Are your workers hourly, salaried, employees, or independent contractors? There are pros and cons to each designation, but classifying them correctly can help you manage payroll.
If you notice that an hourly worker’s paychecks are fairly static, perhaps you should switch them to salaried (be aware of implications for benefits, however). If an employee is more accurately an independent contractor you wouldn’t have to worry about deducting taxes, saving you time and money. And you could shift to paying an independent contractor monthly.
If your total payroll burden puts a strain on cash flow, you could switch paying hourly employees on one week and salaried employees on another. Spreading out your payroll obligations could make some room in your budget.
3. Automate Your Payroll Process and Watch Metrics
Outsourcing or automating your payroll process is a great way to manage it more effectively. Using a payroll management software or outside company ensures compliance with state and federal tax laws, so you avoid incurring hefty fines and penalties. And it frees up internal resources to focus on other tasks – like selling.
For some businesses, investing in a payroll software that integrates with customer or sales tracking software can prove beneficial in the long run. If you operate a restaurant, for example, sales data could tell you when you have too many servers on the clock or when you could cut and send someone home.
Comparing sales to payroll hours is a great way to identify and trim payroll bloat. It will also show you top performers, the salespeople who generate the most sales per their hours worked. Another way to manage payroll is to view it as a business decision tool, as generating more revenues increases profits and your ability to cover expenses.
4. Acquire a Payroll Business Loan
Cash is king, and no more so than when it’s payday. If you use a payroll service, they’ll debit the monies from your checking account the day before payroll. In rare cases you can use a credit card as back-up, but cash advance fees can be astronomical.
Your best option to make sure that you can always cover payroll is to acquire a payroll business loan. A loan allows you to have adequate working capital to draw on it when needed, and pay it back as cash flow permits. If you face a temporary cash shortage, you can draw $5,000 for payroll on Friday, make the money in the weekend’s sales, and pay it off on Monday.
Payroll loans also give you the ability to hire additional employees. As pandemic assistance starts to run out more people will be looking for work. The additional working capital on hand will allow any business owner to be competitive in the hiring process.
5. Conduct Regular Payroll Audits
Mistakes happen, but they can be costly. Incorrect time-keeping, inaccurate tax deductions, or incorrectly classifying employees can all cost you money.
If you have a larger business, conduct monthly or quarterly audits of the payroll process. Spot-check records and verify time-keeping. Smaller businesses could do this less frequently, but should still keep an eye on the payroll process. However, if payroll shows a sudden increase that isn’t explained by any external factors – increasing hours, adding more staff – make an audit a priority.
Use an audit’s findings to identify redundancies, errors, and places where you could increase efficiency.
Managing payroll could take an upfront investment of time and money, whether it’s planning, hiring, or onboarding a new software system. But it will pay off in the long run. Whether you have the funds on hand or you require some type of business loan, investing in your payroll operations should be a priority.