The Best Way to Process Payroll: A Guide for Small Businesses
Did you start a new business.? Or are you hiring employees for the first time? Payroll is one of the most important processes to handle correctly.
Learn to Process Payroll Efficiently and Legally
Because payroll is critical, we’ve created a detailed 5-part payroll processing guide to help you.
- How Payroll Processing Works
- 9 Reasons Employers Turn To Technology
- Payroll Processing Best Practices
- How To Avoid The Top 6 Payroll Mistakes
- What To Do If You Can’t Make Payroll
10 Important Things to Know About Payroll
- For 2022, The Social Security tax wage base for employees will increase to $147,000. (The Social Security tax rate for employees and employers remains unchanged at 6.2%.)
- The American Rescue Plan increased the maximum exclusion from gross income under the dependent care program from $5,000 to $10,500 for tax year 2021 only.
- Health Flexible Spending: the dollar limit for voluntary employee salary reductions for FSAs is $2,850.
- HSA: Eligible for employees in a high deductible health plan. The maximum annual contribution in 2022 is $3,650 (individual) and $7,300 (family).
- The 2022 contribution limit for Simple IRAs is $14,000. The catch-up contribution for employees aged 50+ by Dec. 31, 2022, is $3,000.
- The Federal Standard Mileage Rate for 2022 is 58.5 cents per mile.
- Many states have increased their minimum wage. If your state’s minimum is higher than the federal, you must pay the higher wage.
- It is generally illegal to deduct customer theft amounts, uniform expenses, and cash drawer shortages from an employee’s pay.
- It is illegal to ask employees to work off the clock. For example, you must pay mobile employees for travel time between worksites, though travel from the employee’s home to their first site of the day is not generally compensable.
- Manual records (including employee timesheets) are lost 10 times more often than electronic records and are much more vulnerable to employee hours theft.
Chapter 1. How Does Payroll Processing Work?
Now, let’s get into the nitty gritty. It’s helpful to break down payroll processing into 7 parts:
- Employee Information Gathering
- Time and Attendance
- Payroll Approvals
- Taxes and Withholding
- Employee Payments and Stubs
- Payroll Recording and Reporting
Let’s discuss each one in detail.
Employee Information Gathering
When you hire an employee, you start by gathering information.
10 Things You’ll Need From Each Employee For Payroll Processing
- Complete job application
- Application for state withholding certificates. (many states require an additional form to the W-4)
- Bank information (if enrolling in direct deposit)
- Medical insurance forms
- Retirement plan documents
- Union contracts and other documentation (if applicable)
- Contracts, non-competes, intellectual property, etc. (if applicable)
- Signatures for employee handbook and policies
What Other Forms Do I Need to Pay My Employees?
However, for this article, we are focusing on the basics.
What is a W-4 Form?
Certainly, the W-4 or Employee’s Withholding Allowance Certificate is key. This tells you how much to withhold from the employee’s paycheck. On this form, they indicate their tax filing status. In the same fashion, they list the number of allowances they are claiming. Then, they let you know if they want you to withhold any additional amounts.
Finally, keep employee W-4 forms with your payroll records. Also, if your employee changes their form, keep both the old one and the new one. Certainly, you want a paper trail for everything.
What If I Don’t Have a W-4 For My Employee?
Keep in mind that even if your employee hasn’t filled one out, you still need to pay them. Print one off from the IRS website ASAP. Withhold as if the employee files single and has no allowances. Then insist they fill one out before the next pay period.
In order to prevent this problem, don’t allow a new hire to start work until they complete and sign their W-4.
Can I Fill Out a W-4 For My Employee?
Can Employees Change Their W-4?
Where Do I Get The Tax Forms to Pay My Employees?
Check out this tip:
Create a volunteer list for overtime hours. When an employee agrees to overtime or wants extra hours, get their signed consent and keep on file.
Some states allow for mandatory overtime. Even if that’s the case, maintaining a list of employees who want overtime as a first resource helps to improve employee satisfaction.
Other important payroll-related onboarding tasks:
- Distribute a copy of your employee handbook and get a signature that the employee understands and agrees to the policies.
- Communicate time and attendance expectations. Address your absence policy and penalties for buddy punching and wage theft.
- Include your expectations around the use of social media during work hours.
- Address employee personal activities while on the job.
Employee Time and Attendance
Accurate payroll depends on accurate employee time and attendance tracking. During onboarding, managers should show employees how to clock in and out of their shifts.
5 Key Findings About Employee Timekeeping
- Firstly, when your employees are working, their time is compensable. Period. It doesn’t matter that your employees are working ‘voluntarily.’ If your employees are on the job, you are required to provide compensation.
- Secondly, you should inform your employees of when payroll checks cut, how often to expect their paycheck and other pertinent information.
- Thirdly, most employers expect employees to clock out during meals. But they allow workers to stay on the clock for breaks under 15 minutes. Define your policies around meals/breaks. Many employers forget to emphasize that rest periods are supported and encouraged.
- Next, you should track time for salaried employees as well as hourly employees.
- Lastly, be aware that manual timecards create many compliance headaches. There are many methods of time tracking and some of them have higher risks than others. Make sure you have the right time clock and software for your business and industry.
Next, at the end of the payroll period, send employee hours data to the payroll administrator. This includes hours worked by the employee and supplement income. Supplemental income can include overtime hours, bonuses, and commissions.
It is important to understand that:
Supplemental income such as a commission affects overtime.
Did you know?
This is one of the most common FLSA violations!
Be aware that overtime is not a simple calculation of time-and-a-half of the employee’s hourly wage when the employee has earned bonus income. The bonus income must be calculated as an hourly wage over the period they earned it. Then you can calculate time-and-a-half.
Taxes and Withholding
After payroll is approved, calculate the employee’s net pay.
How Do I Know How Much to Withhold?
Firstly, you have to withhold federal, state, and local taxes. For federal, use the Employer’s Supplemental Tax Guide. Make sure you are using the guide for the correct year.
Secondly, your state has a taxing authority also. Contact your state department of labor for information about state taxes.
Don’t forget, you might also have local taxes to deal with. Therefore, contact your local taxing authority for information. (We never said this wasn’t complicated.)
On the positive side, if you hire a payroll provider, they will figure this out for you.
Deductions and Withholdings
You must subtract deductions and withholdings from gross earnings. This includes state, federal and local taxes.
In addition, deduct retirement contributions and health care premiums. Furthermore, you may have to garnish some employees’ funds for child support.
Include other programs you offer such as a health savings account or stock purchase plan.
Next, distribute paychecks and earnings statements.
Some states require that employers provide sick leave accrual information. Local family leave laws may require documentation. Plus, in certain industries and locations, you may have to provide overtime documentation.
How Do I Pay Payroll Taxes?
How Often Am I Supposed to Pay My Employees in a Small Business?
The feds don’t care how often you pay, but you need to be consistent. How can your employees manage their bills if they never know when they are going to get their paycheck?
Payroll Recording and Reporting
The IRS requires you to send payroll reports at least quarterly. State reports are usually due quarterly as well.
5 Key Findings about Payroll Reporting
- Failure to send reports on time can result in major fines and penalties.
- Even if you are the only employee of an S-Corp, you must still file payroll reports!
- You are responsible for the documentation surrounding payroll reporting.
- Innocent mistakes can lead to penalties. It can also lead to employee-employer disputes and loss of reputation.
- Most employment law assumes employer guilt first. Indeed, when it comes to payroll and employee time tracking, employers cannot afford to be casual.
Now that we’ve discussed the nuts and bolts, let’s turn our attention to compliance. When you step into payroll and employee time tracking, it is vital that you are aware of employment laws.
Employers have many compliance hats to wear. Some laws require you to provide employee schedules in advance. And state laws require certain procedures for overtime pay or shift scheduling.
In addition, other laws require that employers provide employees with sick leave and track data for a minimum number of years.
- FLSA and DOL requirements
- State or local predictive scheduling laws
- City or state industry overtime laws (such as restrictions for nurse employers)
- State or local minimum wage laws
- Federal, state, or local FMLA and other leave laws
Chapter 2. 9 Reasons Employers Turn to Technology For Payroll Processing
Now that we’ve outlined how complex payroll is, let’s talk about automation and technology.
There are many reasons to use technology. However, we will limit this to the top 9 reasons employers turn to technology for payroll processing.
- Visibility & Communication
- Less Frustration
- Save Money
- Track & Measure
- Happier Employees
Bottom line, payroll errors can cost you!
Indeed, even big companies aren’t immune.
If you are tracking everything vía spreadsheets or worse, paper— you are missing information.
6 Key Findings About Manual Payroll Processing
- 2%-5% of business documents get lost on a daily basis. It costs $120 to replace one missing document (on average).
- Business owners should be aware of assumed employer guilt.
- When an employee accuses a company of incorrectly paying them, the burden of proof rests with the employer.
- Even if the employee has no proof of the accusations, the employer can get stuck paying out penalties if they didn’t have proper records.
- Processing payroll with personal checks or even QuickBooks is sketchy and incomplete.
- Automated timekeeping systems track and retain employee schedules, timesheets, and accruals.
Did you know that payroll errors account for roughly 1% – 8% of the total payroll each period?
Check this out!
One of the lowest estimates of employer loss is $40 per employee per month on payroll expenses. If you have 10 employees, that’s $800 a month. (Most studies show a much higher cost per employee of payroll errors)
The average payroll mistake takes 15 minutes to correct.
First, you have to track down the employee who filled out the timecard in question. Secondly, you have to get the right information, which may take multiple calls or texts. Lastly, you have to correct it in your payroll system.
In addition to having more accurate records, you will greatly improve efficiency if you automate your timekeeping and payroll systems.
Your time tracking system and employee time clocks should integrate seamlessly with your payroll system.
This eliminates manual processes and data entry.
Let’s review an example that illustrates the drawbacks with manual payroll processing…
Kim is the HR manager for a manufacturing company with 150 employees. The company system consists of a punch clock, paper timesheets, and payroll software.
In addition, their software hasn’t been updated in five years. There is also a separate accounting program. For this reason, things are unnecessarily complicated, to say the least.
To process payroll, Kim first collects timesheets from five managers.
Hopefully, they have already collected all the timesheets from their respective employees. She also depends on them to correct missed punches and approve the timecards. Unfortunately, one or more managers miss the deadline nearly every pay period.
Secondly, after collecting timesheets, Kim manually transfers the employee hours into the payroll processing software. This process takes about six hours of dedicated time. After she enters the data, the software calculates wages, taxes, and deductions for each employee.
However, she’s still not finished…
The third step is to print the checks and give them to the managers to distribute. Printing checks and organizing delivery can take up to an hour. Her last step is to enter payroll totals into the accounting software.
Because she has to double check to make sure the payroll and accounting systems match, this can take another 90 minutes.
Let’s Add it Up
The company pays employees semi-monthly, so Kim spends about two days of every month processing payroll.
Consider also that there are many variables at play in this manual process.
First off, Kim has to separate regular hours and overtime hours. Secondly, she has to put the totals in the correct cell on the right line.
Errors will cascade if she accidentally adds, omits, or transposes digits.
It’s a grueling job. For every hour of focused concentration, accuracy is sacrificed to fatigue. Indeed, every glance from paper to computer requires an adjustment. Plus, using multiple systems makes this even worse.
A conservative estimate of error rate is 2%. Therefore, for Kim’s 150 employees, three would get an incorrect paycheck in any given payroll period. If you run payroll twice each month, this could add up to 72 inaccurate paychecks a year!
Visibility and Communication
One of the most common reasons for switching to automated time tracking is visibility.
This includes both a top-looking-down and a down-looking-up view. Managers have visibility for employee habits and trends. They can compare overtime by department or project. Similarly, managers can view turnover and analyze data.
Employees can monitor payroll through an employee self-service portal (ESSP). An online HR dashboard answers questions about their paychecks. And mobile apps put HR on their smartphone.
Furthermore, they can view Paid Time Off (PTO) balances and sick day usage.
Employees can also update contact information, withholding, and other data without manually filling out forms.
In addition, they can view their schedules, request time off, or send a message to HR.
If your policy allows it, let employees opt-in for additional hours. Managers can quickly view which employees are available, which have overtime scheduled already, and who has the qualifications for the shift.
This visibility makes it easier for managers to fill unexpected vacant shifts.
Moreover, it builds goodwill and improves communication.
Top 4 Payroll Headaches
- Repeating a task due to an error
- Performing tasks that can be automated
- Tracking down an employee for missing information
- Paycheck mistakes that frustrate employees
Imagine solving these problems!
The solution is an HRMS with automated document retention, instant document retrieval, and software integrations. This is the formula for stress-free payroll processing.
Track and Measure
Businesses that move to more accurate methods of timekeeping are often surprised by how different employee timecards look after switching.
This includes employees showing up 5-10 minutes later than the ‘estimated’ times of arrivals previously reported.
Did the employee’s habits instantly change?
Managers are surprised that employees who typically leave a few minutes early start staying until the official end of their shift.
Clocking out with a time clock creates a measurable benchmark. In other words, automated timekeeping increases accountability.
Vital Time and Labor Metrics
- Hours worked by employees on a daily or weekly basis
- How close employees are to overtime thresholds
- Turnover ratio
- Cost of onboarding
- Time spent by HR or payroll:
- Retrieving employee documents
- Updating employee information manually
- Entering timecards and processing paychecks
- Researching information to show compliance
- Average exaggeration of hours worked on manual timecards
- Workers who routinely skip breaks or lunch hours
- Employees who regularly come in late or leave early
- Timekeeping trends within departments
None of these things can be accurately tracked or measured with manual processes. An HRMS simplifies analytics.
Payroll Processing Integrations
Employers can do more with less time and fewer costs through HRMS integrations. (Check out this list of Swipeclock’s integration partners.)
5 Ways an HRMS Results in Happier Employees
- Automating tedious redundancies improves employee satisfaction
- Eliminating payroll mistakes increases employee satisfaction
- Employee access and control over their information increases trust in the employer
- An HRMS reduces scheduling stress and improves work/life balance
- When payroll is managed efficiently, administrators can spend time using their skills to enhance the workplace experience
Chapter 3. Payroll Processing Best Practices
- Integrate Systems
- Use WorkforceHub
Many companies have one system for time and attendance and another for payroll. There may also be separate software for accounting or employee scheduling.
If the systems aren’t integrated, someone has the unpleasant job of transferring data by hand.
As we mentioned previously, data entry and manual transfers can lead to big problems.
Separate Systems Are a Pain
If you are using separate systems, you are duplicating work. And this work is painstaking in the first place. Admin hours add up.
If a $30/hour manager takes two days a month to run payroll, it is costing $480 in wages alone.
There is a better way!
If that manager had the tools to process payroll in two hours, you would save $420 dollars per month. That’s $5,040 annually.
The payroll manager isn’t the only one spending time on payroll. Employees spend at least fifteen minutes twice a month reporting their hours. Managers spend additional time collecting and verifying timecards.
Furthermore, you lose money when workers leave their primary duties to do something a computer can do in seconds. The computer doesn’t make addition and subtraction errors, either.
Automate Manual Processes
You need automated timekeeping that syncs to your payroll software. Swipeclock’s TimeWorksPlus integrates seamlessly with all major payroll systems. Plus, it integrates with Swipeclock’s industry-leading time clocks.
WorkforceHub Streamlines Payroll
WorkforceHub reduces mistakes in payroll processing. Tracking time accurately is the first step to smooth and accurate payroll processing. Sync WorkforceHub with one of our biometric clocks to capture accurate punches and speed up payroll processing.
When you import clean data into your payroll software, everything else falls into place.
With WorkforceHub, you pay your employees for each minute they work.
Schedule enforcement ensures that you don’t pay for punches outside of authorized shift start and end times.
Biometric identification protects you from employee wage theft such as buddy punching.
This is slick:
Logical prompts prevent common punch mistakes.
Do you have mobile or offsite employees?
The WorkforceHub mobile app captures punches for offsite employees. GPS also provides real-time oversight into the exact location of mobile workers. Additionally, geofencing flags out-of-bounds punches.
Accurate Deductions and Taxes
Processing payroll with clean data ensures that deductions and taxes are correct.
Payroll processing synced to WorkforceHub protects you from underpaying payroll taxes. It also prepares you in case of an audit and provides accurate and reliable reports.
Not to mention, WorkforceHub calculates vacation and sick time. Your employees will earn the correct PTO without anyone pulling out a calculator.
That’s not all:
They’ll also be able to check on their own progress. Employees can log into WorkforceHub to review or update their personal data. Self-service reduces the impact on your managers and empower employees to participate. Everyone will be happier.
Shrink Your Payroll
With WorkforceHub, you have the tools to optimize your workforce. Optimization saves money everywhere.
Eliminate employee time theft. Keep your staff on billable tasks instead of timecard prep.
Let your managers approve timecards online in seconds. This can free up your HR staff for projects that increase employee engagement or improve training.
In addition, when your company doubles in size, you won’t need to hire another payroll manager to handle the growth.
WorkforceHub has overtime alerts that ensure tight overtime oversight. Customize per your overtime policies and then set auto-alerts for managers. Indeed, the average business with 50 employees can save $13,650 yearly by using WorkforceHub.
Accurately pay overtime hours for non-exempt employees. Similarly, ensure employees maintain part-time or full-time status under ACA.
By the same token, track employee or independent contractor classification. Customize WorkforceHub for union or industry regulations.
Put the Strategy in HR Strategy
You don’t have to be a big company to use big data. With WorkforceHub reporting and metrics, you’ll have the data to make better decisions.
By tracking metrics, you can find answers. For example, which shifts have the most punch exceptions? How does attendance vary by location or job site? Which seasons see the most PTO use?
It’s a best practice to compile absences by department or project. In addition, compare the overtime hours from team to team and contrast with production levels.
Update Training Programs
Create onboarding and training materials that reflect the dynamics of your organization.
When you process payroll like a pro, your company can focus on growth and success.
Do you have hourly employees?
WorkforceHub paired with a biometric clock is ideal for industries with hourly employees—construction, hospitality, healthcare, food and beverage, retail, and education.
Incidentally, saving time on payroll is not the only advantage, though it’s a biggie.
For example, employees don’t have to fill out paper timesheets. Therefore, managers don’t have to correct timecard errors.
The payroll manager doesn’t have to do manual data entry. Everyone meets their deadlines and the employees get their checks on time.
Chapter 4. How to Avoid the Top 6 Payroll Mistakes
Clearly, with something as complex and multi-faceted as payroll, there are endless ways to mess it up. We’ve organized them into six categories:
- Human Error
- Missed Deadlines
- Not Keeping Up-to-Date With New Laws
- Insufficient Records for Audits & Disputes
- Improper Employee Classifications
- Cash Flow Problems
So what’s the solution?
An HRMS like WorkforceHub can solve these problems. Dedicated payroll services work with your HRMS. Together, these resources will help you prevent these common payroll problems.
Payroll Mistake #1: Human Error
It’s called ‘human’ error for a reason; humans make mistakes.
Need some examples? Here are some:
- Employees enter incorrect hours on paper timesheets
- Timecards get lost
- Employees forget to clock out for unpaid breaks
- Mobile employees miss clock in and clock out
- Supervisors fail to track overtime
Even the most meticulous Human Resources managers make data entry mistakes. Employees do too.
Errors Aren’t Isolated
An error isn’t an isolated event. It causes a domino effect:
Incorrect hours lead to incorrect paychecks. Incorrect paychecks affect withholding and payroll taxes. Most importantly, employees don’t like it when an error causes a shorted paycheck.
In addition, there are intentional human errors. Employees pad time cards to add hours to their paycheck. Supervisors hide overtime to meet department budget goals. There are a lot of motivations for fudging the data.
Every time data transfers to a new system there is an opportunity for error. When managers commit paycheck errors on a large scale, it can result in huge fines.
This is true whether the infraction is intentional or not!
T.G.I. Fridays failed to pay employees for off-the-clock work. They also violated break laws. If that weren’t enough, they practiced illegal tip pooling. The result? A $19.1 million fine. There are scores of employment law attorneys waiting to help employees who have a payroll claim.
There is also an administrative burden tied to payroll errors.
Chiefly, each mistake takes time to correct. For example, the payroll manager must investigate the mistake and fix it. This usually involves talking to an employee or manager. This interrupts their day and, of course, each of these players is on the clock.
Certainly, human error is a clear and present danger. It adds to your labor costs and puts you at risk for business-sinking fines.
Know Payroll Mistake #2: Missed Deadlines
You have a deadline every pay period. Your employees need their checks on time.
There are also federal, state, and local tax filing deadlines.
Tax Extension Fee
Employers must submit business income tax and withholdings. Some of these deadlines vary depending on your business structure. There are industry-specific filings, as well.
Did you know?
4 Critical Things to Know About Tax Filing Extensions
- Requesting a tax extension allows you to file late. But you still have to pay any taxes that are due. And the government still expects you to pay the estimated amount by the original due date. Tax extensions are common practice in business. But they shouldn’t be…
- Tax filing extensions incur fees. Taxes already eat up enough profit. Few businesses can afford fees on top of taxes.
- Missing filing deadlines can interrupt cash flow. When you have to double a payment due to a delay, you better have a cushion. It’s hard to meet budget goals when you miss tax deadlines.
- The need to file tax extensions is an expensive prospect that you can avoid. Payroll services can help you prepare in advance to avoid the fees.
What happens if you miss a deadline?
Of course, employees lose motivation when they aren’t paid on time, and that affects customers. In addition, employees who experience chronic payroll problems are more likely to file a report. Because reports lead to audits, if you are missing payroll, you aren’t going to pass an audit.
Plus, audits can result in fees and other penalties that can sink your business. Payroll services with integration to human resources software will help you manage better.
An HRMS makes sure your data is accurate and up to date. Integration with payroll saves you time so you can meet deadlines. Together these systems can help you avoid audit trouble.
In the event of an audit, your HRMS provides detailed reports.
Professional payroll services can save you more money than they cost.
Payroll Mistake #3: Not Keeping Up With New Laws
There is nothing simple about compliance.
This has been true for decades and there is no reason to think it will ever change. Entrepreneurs must enter business ownership with eyes wide open.
Regulations exist for a wide range of business practices. Payroll is at the top of the list for many reasons.
Laws that affect payroll:
- The Fair Labor Standards Act (FLSA) covers child labor, minimum wage, and overtime.
- There are the Affordable Care Act (ACA) implications depending on the number of staff.
- In the healthcare industry Payroll Based Journal (PBJ) requirements dictate healthcare time recording.
- Employers are subject to Family Medical Leave and Fair Scheduling laws
- Though not law, union agreements can impose wage requirements and scheduling mandates.
Many other industry-specific regulations from state to state deal with payroll services.
Also, other requirements apply if you employ non-U.S. citizens. It’s important to realize that the Department of Labor fines business of all sizes.
Equally important, some employers have many layers due to differing state and local workplace laws. Because these are very complex, it helps to have a payroll services expert on your team.
There can be a lot to worry about. Your payroll services provider has the answers.
Cautionary Tales of Payroll Violations
Two Marietta Georgia hotels paid $73,732 in back wages and liquidated damages to 14 employees.
They violated minimum wage, overtime, and recordkeeping provisions of the FLSA.
A Newark New Jersey medical transportation company was ordered to pay $77,202 in back wages. In addition, they were also ordered pay an equal amount in liquidated damages.
Each law has associated recordkeeping rules. Though an added burden, records are your best protection in case of a payroll dispute.
HR Software for Recordkeeping…
Human Resources software can help you create and manage compliance records. In most cases, automatic time and attendance records are part of the system.
Faulty recordkeeping can result in a fine even if there was no violation. Therefore, it pays to have a Human Resources system for time and attendance data.
Human Resources software helps you analyze company performance.
Advanced HR software present data in graphical formats. It reveals trends otherwise easy to miss. This data can be helpful in payroll processing but isn’t limited to this.
Namely, the software provides insight into scheduling, payroll, and workflows. Business owners can use analytics to optimize everything connected to their employees.
Since labor is your biggest expense, spend time optimizing it.
Payroll Mistake #4: Insufficient Records
It’s important to realize that lawsuits can cripple a business. Especially when you are not prepared. Indeed, good records can insulate you against audits, employee accusations, or regulatory penalties.
Fortunately, recordkeeping is an automatic function of Human Resources software. Plus, your payroll services advisor can use real-time reports to prepare for an audit. In addition, you can also use them to respond to an employee challenge.
Employees should have access to their own records in your Human Resources software. Employee self-service access can help you manage payroll by empowering employees.
Empowered employees can solve smaller problems and relieve busy managers from interruptions. They can also access historical data that answers a complaint before it becomes an issue.
Store Records in the Cloud
Using a cloud-based service that provides historic recording and backup is critical. Storing this data off-site means you won’t have to worry about disaster recovery.
Cloud-based Human Resources systems allow you to share data with your payroll services provider. This gives you real-time access to both your trusted payroll services advisor and your data.
Together these systems can keep your company afloat when challenges arise.
Payroll Mistake #5: Improper Employee Classification
Improper employee classification is a common payroll pitfall.
Three critical classifications are:
- Independent contractor
- Hourly non-exempt
- Salaried exempt
The ‘exempt’ refers to overtime protections. Non-exempt employees earn overtime when they work more than 40 hours a week. Exempt employees don’t earn overtime.
Improper classification of an employee can result in fines or non-compliance penalties. Employees might not receive credit for the right pay scale, resulting in a short paycheck.
Complicated classification requirements can result in missed steps. For instance, it is a common misconception that employers can decide how to classify. In reality, a job title is meaningless but job roles are important. It’s the job duties and relationships that count.
Did you know?
Paying a worker a salary doesn’t cut overtime requirements. Even large corporations misclassify. Sometimes they do this to avoid paying overtime, minimum wage, and employee benefits.
Example of Misclassification
Let’s talk about MetLife. MetLife changed the classification for a position even though the duties didn’t change. The mistake cost them $50 million dollars in penalties and back pay.
This one was even worse…
FedEx experienced an even bigger problem. They paid a $240 million settlement for misclassifying drivers.
Both companies experienced a disconnect that cost them big time. Employee complaints grew into regulatory scrutiny. In either case, the companies could have avoided fines and penalties.
The lesson learned is that there can be a significant penalty when payroll is in question.
Ignorance is no Excuse
As a small business owner, you know by now that ignorance is not an excuse recognized by the law. Claiming you ‘forgot’ will only make matters worse.
Because of this, insulate your business from employee classification problems. An easy way is to incorporate job roles into your Human Resources software.
Good employee timekeeping software allows you to schedule based on job role. You won’t have to worry if your job roles include accurate classifications.
Job roles can help you enforce regulatory scheduling requirements. They can also help you maintain proper employee classifications. Scheduling with job roles assures you are in compliance and covering skill requirements.
Here’s a tip:
Ask your payroll services provider for help in setting up your employee classifications. Then, assign job roles to employees based on classifications. Finally, set up scheduling alerts to guide shift planning.
Payroll Mistake #6: Cash Flow Problems
Insufficient cash flow can sink your business before you even get started.
Because without cash flow, your payroll will starve. It’s important to realize that many payroll problems have roots in cash flow. When funds are low, owners and managers become desperate.
Cutting corners and making ends meet outside of convention results in payroll problems. When you delay payroll taxes because of a cash flow pinch you place your company in jeopardy.
In the final analysis, Human Resources software with employee scheduling can prevent problems.
Run a Tight Ship
Limited cash flow means you have to run a tight ship. You can’t run a tight ship if you aren’t watching the numbers.
Human Resources software can help you watch the numbers. Your payroll services manager can watch too. Even if they are working from a remote location.
Scheduling, time and attendance, and integrated payroll work well together. When they do, they can save you a lot of time and money. They can also optimize your workforce so you aren’t spending more than you can afford.
Scheduling templates can help you standardize your workforce. Online shift swapping can help you fill gaps in a hurry. Alerts can warn you of unplanned overtime. All these and more can help you focus on cash flow optimization.
Process Payroll Like a Pro
Your business might not make it. That’s a fact that will keep you up at night.
But you have the tools and know-how to avoid problems and that’s a big head start.
Don’t go it alone:
Your business should rely on a trusted payroll services provider. These providers focus on the details while you focus on your business. It’s a well-seasoned relationship, and time has proven over again that this is a match made for success.
Technology Increases Your Chances Of Success
Employee timekeeping software plays a critical role in the success of your business. Good software improves efficiency. Optimizing your workforce with cloud-based technology improves your performance.
Improved performance, in turn, will give you a competitive edge. It will also help you avoid the points of failure discussed in this article.
First off, stop missing deadlines by planning ahead. Ask your payroll services provider for help. Depend on your employee timekeeping software to collect and store the data.
Seek advice from your payroll services provider on new laws and regulations. Take advantage of cloud-based software. It is always up-to-date with current compliance and regulatory reports.
We’ve mentioned this before, but it bears repetition:
Keep good records that your payroll services provider can access 24/7. In addition, prepare for audits with real-time reporting.
Plus, add employee classifications to your job roles. Use platforms that will allow you to schedule with job roles. Clarify your job role assignments with your payroll services provider so you can make job roles and employee classifications the heart of your time tracking system.
Chapter 5. What To Do If You Can’t Make Payroll
If you don’t have money to pay your employees, you’ve got 99 problems and payroll is only one of them. You have a serious cash flow issue. You have a serious business management issue. Your company may be insolvent and require drastic action to turn things around.
In this section, we are only addressing the short-term emergency at hand—how to make payroll.
1. Fire Sale Inventory to Raise Quick Cash
2. Lean Hard on Clients With a Past-Due Balance
Time to hit up delinquent accounts. Get your accounting or collections team on the phone pronto.
3. Give Current Clients an Incentive to Pay Now
If you have clients who pay monthly, offer a 5% discount to pay in advance this month.
4. Get a Short-Term Loan
Your bank may give you a loan. Or a business line of credit which is basically the same as a loan. You get money now and pay interest on the balance. If your bank says no, try a merchant cash advance (MCA).
5. Borrow From Your Retirement Account
6. Sell Your Car
7. Sell Your Invoices to a Factoring Company
Sell your invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company now owns the accounts. They get paid when they collect from your clients.
The Most Important Thing NOT To Do If You Can’t Make Payroll
Don’t. Ever. Lie.
Some business owners in this nightmare scenario are tempted to lie to their employees. ‘The payroll company messed up. Checks are delayed for a few days.’
First off, it’s just plain wrong. Secondly, they can sue you. Thirdly, your employees are smart enough to see right through it.
They are already going to be ticked that they aren’t being paid. Consequently, don’t make it worse by lying! If your employees like their job, some will give you a pass this once.
4 Ways to Make Sure You Never Miss Payroll
- Build up a cash reserve of 2-3 pay periods in your business account
- Cut expenses by laying off employees or letting inventory run down
- Reduce hours for hourly employees
- Find a payroll company with a payroll protection program
Swipeclock’s WorkforceHub features advanced payroll integration.
WorkforceHub includes compliance features to help you avoid legal trouble. Instant reports and historical tracking help you stay ahead of deadlines. Built-in reports help you meet compliance standards.
Payroll Processing Solution: WorkforceHub and a Reliable Payroll Services Provider
WorkforceHub has all the tools you need to operate a successful business. Combine it with your capable leadership and the help of a qualified payroll services provider.
Simplify HR management today.
Simplify HR management today.
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