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Improving the Payroll Process

The idea of payroll seems straightforward. A company sells a product or service. The revenue from those sales is distributed between operational costs and payroll. Employees who log hours during the payroll period get paid for their work.

Small and medium-sized companies often feel that this process is better managed if it is done manually. However, the multiple tasks associated with “payroll” can be rather confusing and result in a variety of problems. Especially as the business grows, the once easily managed manual methods may become overwhelming as additional employees are added to the mix.

In addition to simply paying employees, the employer is also required to track time worked, attendance, and have a good handle on reports for annual or quarterly audits. Other issues can arise from properly setting up employees in a payroll application or platform, calculating deductions, direct deposit, and managing the reporting of hourly employees who clock-in or out.

Employees rely on effective and accurate payroll processing from their employers. If the payroll process is delayed or inaccurate, the employee is likely to incur issues in their personal life as it relates to finances. This can cause undue hardship between the employee and the employer.

Whether you are processing payroll manually or using a human capital management (HCM) platform that includes payroll processing, we recommend using these tips to improve your existing payroll process.

Use a Payroll Calendar.

Create a payroll calendar that includes payroll cycle start and end dates and pay dates. The calendar will need to take into account Federal and/or holidays observed by the organization that falls during the regular workweek. Marking these holidays on the calendar will help to reinforce the cycle start and end dates. Post the calendar in a conspicuous place, in addition to making it available on the company intranet. This is also a great piece to include in the new hire packet.

Self-Check with Regular Audits.

Gross wages, benefits, social security and Medicare, and tax withholdings are all factors of your payroll process that need to be evaluated on a regular basis. Develop a regular audit schedule if you are processing payroll manually. This audit should include a verification of all active employees, confirm pay rates match employee records, hours worked match hours paid, time is labeled correctly (i.e. PTO, bereavement, holiday, regular, etc.), compare your general ledger to your bank statement, and check to ensure withholdings and remittance are correct based on each employee’s tax amount.

If you are enlisting the assistance of an HCM, you should still double-check many of these same elements. As the employer, it is your responsibility to know where your business stands in terms of your payroll process. This includes understanding active vs. terminated or inactive employees, hours worked vs hours paid, etc.

Know Your State and Federal Tax Policies.

It is fair to say that most business owners find taxes and bookkeeping to be one of the most difficult or less favored parts of owning a business. This does not minimize, however, the importance of these tasks, especially as they relate to compliance. While using an HCM with a payroll feature can help minimize your compliance concerns, this does not remove your responsibility of also manually maintaining payroll compliance. It is important to keep a close eye on legislative updates on a federal and local level to ensure your business is compliant and policies are current.

Here are some additional resources:

Include a Strong Payroll Policy in Your Handbook.

Employees aren’t required to fully understand the payroll system, but they should be able to access information quickly and easily to help answer any questions they may have. For example, unpaid taxes or employee misclassifications is an item that should be covered in the employee handbook.

Overall, it is better to be as transparent and forthcoming as you can regarding any organizational policies. This will leave little room for interpretation and misunderstanding on the employee’s part. At the very least, your employee handbook should detail employee classification, how salaries are calculated, employee reporting, how promotions are calculated, and how the business handles any payroll mistakes.

Processing payroll can be one of the most time consuming and costly aspects of your business. Harbor America payroll solutions offer businesses peace of mind when it comes to wage garnishments and deduction, direct deposit, reporting, and time and attendance. In addition, we will actually file and distribute your W-2s and manage your State and Federal filings. Contact us to learn how we can eliminate these and other tedious payroll-related tasks.

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