Payroll is one of the most common ways businesses can get into financial and legal trouble. A constant, recurring chore, payroll is a tedious, stressful, expensive – and completely unavoidable – part of doing business. Many businesses struggle to keep enough capital on hand just to deal with the short-term expenses of paying employees, but payroll mismanagement can lead to much more costly errors down the line at tax time.
Follow this guide to streamlining your payroll process in order to take the anxiety out of one of the most important parts of doing business.
Misclassifying employees can be a costly mistake, both legally and financially. One way unscrupulous employers try to cheat the taxman is by classifying employees as independent contractors. The IRS is well aware of this scam, and a single misclassification can lead to an audit. Serious penalties are to follow, whether you did it on purpose or not.
Employers can save up to $100 per worker every year by using direct deposit to pay their employees. Incentivize your employees to authorize direct deposit, either by paying them first or by passing some of the savings on to them.
When you can, consider paying your employees a fixed salary instead of paying them by the hour. This isn’t always possible because salaries are often expected to be paired with costly benefits or insurance packages, but if all other things are equal, it can make payroll much easier. Salaried workers receive the same pay every period, which leaves much less room for costly errors on weekly time sheets, both in short-term pay for your employees and long-term costs at tax time.
Find the Right Software
Good software can take the headache out of the recurring chore that is payroll. Make sure you get software that both manages and audits payroll, and integrates into your bookkeeping software. If you use QuickBooks, as so many small business owners do, consider using Intuit Payroll, which guarantees accurate tax preparation and requires just three steps to get your checks right the first time.
Any software you buy should come with 24/7 support for the questions you will inevitably have, and it should electronically file and pay taxes for you.
Most small businesses outsource their payroll. The reason for this is that companies specializing in payroll are experts not only in the recurring process of paying your employees and keeping your records, but also in keeping up to date with the complicated and constantly changing tax codes and laws that go along with that process.
This service is, of course, not free, but they are much more likely to avoid mistakes that can cost more at tax time than the service would have cost in the first place. Be warned, however, that your tax obligations are yours alone, and even if a third party makes an error on your behalf, the error is your responsibility.
It seems like every time you finally wrap up payroll, it’s time to start all over again. It’s a recurring expense, a recurring headache, and the slightest lapse in focus and concentration can breed mistakes that can lead to irritated workers, shortcomings in capital, and a big mess when April rolls around.
Taking a few steps to make things easier, however, can make most of the problems go away. Get your payroll process streamlined, and you’ll be happy to get it right on time, every time.