managed-payroll-process

Whether you are a new business, an established but smaller business, or a large enterprise with multiple departments, how you manage your payroll process is critical.

The process can seem exceptionally complex, especially for new or small businesses with limited staff. However, with a proper system in place, you can manage payroll efficiently, accurately, and in full compliance.

 

Manage Your Payroll Better With These 8 Steps

One of the truths of successful management is the need for effective systems, or processes. Without a comprehensive, consistent and repeatable process very little can be done reliably in a business. Despite the fact that each business is different from others and may have unique requirements, the essentials for most every process is essentially the same for any business.

To that end, this tip sheet serves as a guide and a “cheat sheet” that summarizes the eight essential steps of a basic payroll management system, or process.  If you have already set up and established your payroll process it is a good idea to take time to review and assess systems. This tip sheet can help you with that, as well.

 

#1: Obtain a company tax code.

Before hiring employees, you need to get a tax number from the Tax Department.  It is necessary for reporting taxes and submitting other documents to the tax authorities.  I know that this seems obvious, but there is a surprisingly large number of companies that do not do this, and are fined annually.

 

#2: Classify as Independent Contractors or Employees

Know the difference and be clear on the distinction between an independent contractor on a service contract and employees on a labor contract.  This is the most common mistake businesses make with regards to payroll, and it’s costly to you and your employees.

 

#3: Take Care of Employee Paperwork

All employees must have a personal tax code.  If they do not already have one, they or the company must request one.  Your employee must also complete the dependent registration form and return it so that you can withhold the correct tax amount from their pay.  Failure to provide supporting documents proving dependents results in no deductions for dependents and higher taxes for the employee.

 

#4: Carefully Document Your Employee Compensation Terms

Consider how you handle paid time off (leave and holidays), how you track employee hours, if and how you pay overtime, and other business variables.

 

#5: Choosing a Payroll System

Typically, your options for managing payroll include in-house or outsourced solutions.  However, regardless of the option you choose, you — as the employer — are responsible for reporting and paying all payroll taxes.

 

#6:  Running Payroll … Plan Ahead

Once you have all your forms and information, you can start running payroll.  I cannot emphasize this enough. Process the payroll ahead of time.  So many companies are late paying salaries because they fail to plan for holidays or bank closures.

Devise a payroll-processing schedule that allows you ample time to process the payroll and to correct detected errors before employees receive their paychecks. For example, perform payroll processing two or three days before the actual pay date.

 

#7: Get Record Keeping Savvy

State laws require that employers keep certain records for specified periods of time.  You must keep filed tax forms, and date and amounts of all filed tax forms.  Keeping the records is easy, finding them is harder. Create a system to store and file the documents, AND keep the filing up-to-date.  Like a garden, a good file system must be pruned and maintained daily.  Don’t wait to file documents.  Do the filing regularly.

 

#8: Report Payroll Taxes

You would be surprised how often business fail to report payroll taxes by the deadlines.  There are several payroll tax reports that must be submitted to the Tax Department either monthly, quarterly or annually.  Have a well-planned calendar laid out for tax filings is crucial for avoiding penalties.

 

Make Your Payroll Management Easier, Not Harder

There are a wide variety of reliable resources available to help you fill in the specific details for each of these steps.  You can begin with the General Department of Taxation and other sites, or consider one of the many software tools available for payroll management.

Documenting your procedures and developing a system for maintaining and updating that documentation is also key to a successfully managed payroll process – or any other process, for that matter.