Updated May 20, 2020
You started a new business. Or you own an existing one that is moving into the realm of employees. Payroll is one of the most important processes to handle correctly.
Learn to Process Payroll Efficiently and Legally
We’ve created a comprehensive 5-part payroll processing guide to help you.
- How Payroll Processing Works
- 9 Reasons Employers Turn To Technology
- Best Practices For Processing Payroll
- How To Avoid The Top 6 Payroll Mistakes
- What To Do If You Can’t Make Payroll
5 Important Things to Know About Payroll in 2020
- January 1, 2020, the new overtime rule will take effect. The new salary threshold is $684 per week (equivalent to $35,568 per year for a full-year worker).
- 2020 is a Leap Year. Employers need to program their timekeeping system to register February 29 as a valid workday in 2020. This can add an extra pay period depending on your payroll schedule. An extra pay period affects prorated paycheck amounts for salaried workers, withholdings, and benefit contributions.
- It is generally illegal to deduct customer theft amounts, uniform expenses, and cash drawer shortages from an employee’s pay.
- Payroll mistakes are a common reason businesses fail. Using a Human Resources Management System (HRMS) protects employers from payroll compliance violations.
- Manual records (including employee timesheets) are lost over 10 times more often than electronic records and are much more vulnerable to employee hours theft.
Chapter 1. How Does Payroll Processing Work?
It’s helpful to break down payroll processing into 7 components:
- Employee Information Gathering
- Employee Timekeeping
- Payroll Approvals
- Taxes & Withholding
- Employee Payments & Stubs
- Payroll Recording & Reporting
Let’s discuss each component in detail.
Employee Information Gathering
When you hire an employee, you start by gathering information about that employee. This continues through the onboarding process.
10 Things You’ll Need From Each Employee For Payroll Processing
- Complete job application
- W-4 (There is a new form for 2020)
- 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?
For this article, we are focusing on the basics. We are discussing the tax forms every employer needs to start doing payroll.
What is a W-4 Form?
The W-4 or Employee’s Withholding Allowance Certificate tells you how much to withhold from the employee’s paycheck. On this form, they indicate their tax filing status. They list the number of allowances they are claiming. They let you know if they want you to withhold any additional amount.
Keep employee W-4 forms with your payroll records. If your employee changes their form, keep the old one and the new one. You want detailed payroll records to manage employee costs. Your W-4 forms help you plan for employee costs when it comes to payroll.
What If I Don’t Have a W-4 For My Employee?
First off, why don’t you have one? You can print one off from the IRS website. However, if for some reason your employee hasn’t filled one out, you still need to pay them. Withhold as if the employee files single and has no allowances. Then insist they fill one out before the next pay period.
Prevent this problem by not allowing 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?
Important issues to discuss with employees during onboarding:
- 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.
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 consents to overtime or wants extra hours, get their signed consent and keep that 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.
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
- 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.
- You should inform your employees of when payroll checks cut, how often to expect their paycheck and other pertinent information.
- 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.
- You should track time for salaried employees as well as hourly employees.
- Manual time cards 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 for your business and industry.
At the end of the payroll period, the employee time tracking information is sent to the payroll administrator. This includes hours worked by the employee. Other pay information must also be sent.
This includes any supplemental income earned. 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 time-and-a-half can be calculated.
Taxes and Withholding
After payroll is approved, the employee’s net pay is calculated.
How Do I Know How Much To Withhold?
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.
Your state has a taxing authority as well. Contact your state department of labor for information about calculating and paying state taxes.
You might also have local taxes to deal with. (We never said this wasn’t complicated.) Contact your local taxing authority for information.
If you hire a payroll provider, they will figure this out for you.
Deductions and withholdings must be subtracted from gross earnings. This includes state, federal and local taxes.
Deduct retirement contributions and health care premiums. You may have to garnish some employees’ funds for child support.
It can include other programs you offer such as a health savings account or stock purchase plan.
Administrators must know which deductions to take out of each employee’s wages.
As an employer, you should also understand any local or state requirements.
Employee Payments and Earnings Statements (Pay Stubs)
Next, you distribute paychecks and earnings statements.
In addition to providing employees their paycheck, you must include an earnings statement.
Some states require that employers provide sick leave accrual information. Local family leave laws may require documentation. 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. This makes sense. 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 also reported quarterly.
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 for the employer. It can also lead to employee-employer disputes and loss of reputation.
- Most employment law assumes employer guilt first. When it comes to payroll and employee time tracking, employers cannot afford to be casual.
Payroll Processing 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. State laws require certain procedures for overtime pay or shift scheduling.
Employers must offer employee breaks, which are overseen by the FLSA. It’s a good idea to track them. There are also state laws on meals/breaks.
Still, other laws require that employers provide employees with sick leave and track data for a minimum number of years.
6 Critical Payroll-Related Laws Employers Must Understand
- FLSA and DOL requirements
- State or local sick leave laws
- State or local advanced scheduling laws
- State or local industry overtime laws (such as restrictions for nurse employers)
- State or local minimum wage laws
- Federal, state, or local FMLA or 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
It doesn’t account for the additional cost that payroll errors cost companies due to compliance violations!
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.
You have to track down the employee who filled out the time card in question. Then 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…
Meet Kim. 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.
Their software hasn’t been updated in five years. There is also a separate accounting program. 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 time cards. One or more managers miss the deadline nearly every pay period.
Kim manually transfers the employee hours into the payroll processing software. This process takes about six hours of dedicated time. The software then calculates wages, taxes, and deductions for each employee.
She’s still not finished:
She prints the checks and gives 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.
She double checks to make sure the payroll and accounting systems match. This can take another 90 minutes.
The company pays employees semi-monthly, so Kim spends about two days of every month processing payroll.
There are many variables at play in this manual process.
Kim has to separate regular hours and overtime hours. 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. Every glance from paper to computer requires an adjustment. Using multiple systems makes this even worse.
The opportunity for error goes up with every manual transfer.
A conservative estimate of error rate is 2%. 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!
Payroll 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. 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. Companion mobile apps put HR on their smartphone.
They can view Paid Time Off (PTO) balances and sick day usage.
Employees can also update contact information, withholding, and other pertinent 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. This can be updated at any time an employee is available for more 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.
All of this builds goodwill and improves communication between the employer and the employees.
Top 4 Manual Employee Timekeeping Payroll Headaches:
- It is frustrating to repeat a task due to an error
- It is annoying to repeat tasks that can be automated
- It is discouraging to track down an employee for missing information
- It is disheartening for an employee to be paid the wrong amount
Imagine solving these problems!
Get an HRMS with automated document retention, instant document retrieval, and software integrations. This is the formula for stress-free payroll processing.
Track and Measure
It’s been said that ‘If you can’t measure it, you can’t improve it.’ And it goes without saying that accurate measurement is mandatory.
Businesses that move to more accurate methods of timekeeping are often surprised by how different employee time cards 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. Automated timekeeping increases accountability.
12 Vital Employee Timekeeping 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 in retrieving employee documents
- Time spent updating employee information manually
- Time spent inputting time cards and processing paychecks
- Time spent researching information to show compliance
- Average exaggeration of hours worked on manual time cards
- Which employees routinely skip breaks or lunch hours
- Which employees 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 increase trust in the employer
- An HRMS reduces scheduling stress and creates an improved work/life balance
- When payroll is managed efficiently, administrators can spend time using their skills to enhance the workplace experience.
Chapter 3. Best Practices for Processing Payroll
- Integrate Systems
- Use TimeWorksPlus
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.
Data entry and manual transfers can lead to big problems.
Separate Systems Are Inefficient
If you are using separate systems, you are duplicating work. And this work is painstaking in the first place. Administrative 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 time cards.
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 Payroll 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.
Use TimeWorksPlus to Streamline Payroll Processing
TimeWorksPlus reduces mistakes in payroll processing. Tracking time accurately is the first step to smooth and accurate payroll processing. TimeWorksPlus and a biometric time clock capture accurate punches and tracks time to the minute.
When you import clean data into your payroll software, everything else falls into place.
Paychecks are Accurate
With TimeWorksPlus, 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?
TimeWorks Mobile (the companion app) captures punches for offsite employees. GPS also provides real-time oversight into the exact location of mobile workers. Geofencing makes it possible to restrict out-of-area punches.
Deductions and Taxes Are Accurate
Processing payroll with clean data ensures that deductions and taxes are correct.
Payroll processing synced to TimeWorksPlus protects you from underpaying payroll taxes. It also prepares you in case of an audit and provides accurate and reliable reports.
Accruals are Accurate
TimeWorksPlus 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 TimeWorksPlus 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 TimeWorksPlus, you have the tools to optimize your workforce. Optimization saves money everywhere.
Eliminate employee time theft. Keep your staff on billable tasks instead of time card prep.
Let your managers approve time cards online in seconds. Free up your HR staff for projects that increase employee engagement or improve training.
When your company doubles in size, you won’t need to hire another payroll manager to handle the growth.
TimeWorksPlus has overtime alerts that ensure tight overtime oversight. Customize per your overtime policies. Then let auto-alerts simplify overtime management. The average business with 50 employees can save $13,650 yearly by using TimeWorksPlus.
Process Payroll So You Stay Compliant
Accurately compensate for overtime hours for non-exempt employees. Ensure employees maintain part-time or full-time status under ACA.
Track employee or independent contractor status. Customize TimeWorksPlus for union or industry regulations.
Put The Strategy In HR Strategy
You don’t have to be a big company to use big data. TimeWorksPlus gives you insight into your workforce like never before.
A stack of timesheets can only give a limited view of employee attendance. Data-driven decision making can give your company a competitive edge.
HR planning, absence management, and advanced scheduling can all be optimized with organized data analysis.
TimeWorksPlus lets you isolate and analyze the data for any facet of your workforce.
Payroll Processing Metrics to Track
Which shifts have the most punch exceptions? How does attendance vary by location or job site? Which seasons see the most PTO use?
Compile absences by department or project. Compare the overtime hours from team to team and contrast with production levels.
Update Your 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?
TimeWorksPlus paired with a biometric clock is ideal for industries with hourly employees—construction, hospitality, healthcare, food and beverage, retail, and education.
Saving time on payroll is not the only advantage, though it’s a biggie for everyone.
Employees don’t have to fill out paper timesheets. Managers don’t have to correct time card 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
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 can help you 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 of the more common:
- Employees enter incorrect hours on paper timesheets
- Time cards 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. Employees don’t like it when an error causes a shorted paycheck.
Then 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 on payroll errors.
Each mistake takes time to correct. The payroll manager must investigate the mistake and track down the correct information. This usually involves talking to an employee or manager. This interrupts their day. Each of these players is on the clock.
You’ve heard the oft-repeated maxim ‘time is money.’ When it comes to payroll services, ‘time lost is money lost.’
Human error is a clear and present danger. It adds to your labor costs and puts you at risk for business-sinking fines.
Payroll services integration with employee time tracking software can solve the problem. When these two systems work together, fewer errors can enter the system. Fewer errors mean time saved, fees avoided, and employees happy.
And that makes managers happy, too.
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.
The 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 filing 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 payroll deadline?
Employees lose motivation when they aren’t paid on time, and that affects customers. Employees who experience chronic payroll problems are more likely to file a report. Reports lead to audits, and if you are missing payroll, you aren’t going to pass an audit.
Audits can result in fees and other penalties that can sink your business in a hurry. 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-to-Date 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.
Payroll touches these important areas:
- 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.
- Family Medical Leave and Fair Scheduling laws protect employees from excessive work requirements.
- 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.
Other requirements apply if you have non-U.S. citizens among your employees.
The Department of Labor fines business of all sizes. Even small businesses pay fines that can sink a small company.
Some employers have many layers due to differing state and local workplace laws. These are very complex and 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.
A Few Frightening Examples of Payroll Processing Related Violations
Two Marietta Georgia hotels paid $73,732 in back wages and liquidated damages to 14 employees.
They violated minimum wage, overtime, and record-keeping provisions of the FLSA.
A Newark New Jersey medical transportation company will pay $77,202 in back wages. They must pay an equal amount in liquidated damages, too.
They owe 38 employees to resolve violations of the overtime provisions of the FLSA.
Each law has associated recordkeeping rules. Though an added burden, records are your best protection in case of a payroll dispute.
Human Resources 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. It pays to have a Human Resources system for time and attendance data.
…And For Company Optimization
Human Resources software helps you analyze company performance. Data from time and attendance can be helpful in optimization strategies.
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.
Plus, 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, you would do well to spend time optimizing it.
Payroll Mistake #4: Insufficient Records For Audits and Disputes
Audits and lawsuits can cripple a business. Especially when you are not prepared. Keeping good records can insulate you against audits, employee accusations, or regulatory penalties.
Recordkeeping is an automatic function of Human Resources software. Your payroll services advisor can use real-time reports to prepare for an audit. 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 Payroll 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. This is a simple problem to avoid. It’s amazing that this is a common reason for business failure, but it is.
The 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.
Examples 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 an employee 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.
Improper employee classifications can cascade into larger problems and can capsize your company. Don’t let misclassification be the reason your company fails. It’s easy to avoid this problem.
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.
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. Assign job roles to employees based on classifications. Set up scheduling alerts to automate the process of compliance assurance.
Payroll Mistake #6: Cash Flow Problems
Insufficient cash flow can sink your business before you even get started.
Without cash flow, your payroll will starve. Many of the problems we have discussed 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.
Scheduling and time and attendance can have a huge impact on cash flow. Unplanned overtime can sink a business without you even knowing. Overstaffing can drain your budget when income doesn’t match the resources.
Human Resources software with integrated scheduling can help you avoid these problems.
Efficient time and attendance management can help you shave time and increase productivity. With software doing the heavy lifting, you can optimize your cash flow.
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. In realtime. Your payroll services manager can watch too. Even if they are working from a remote location.
Everyone can be on the same page for scheduling and time and attendance.
Scheduling, time and attendance, and integrated payroll can 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.
You Can 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 the top problems associated with payroll, 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. Software tools help you add efficiency to your management process. Optimizing your workforce with cloud-based technology improves your performance.
Improved performance will give you a competitive edge. It will also help you avoid the points of failure discussed in this article.
Avoid human error with integration between Human Resources software and payroll services. When these two systems work together, there are fewer opportunities to make mistakes.
Stop missing deadlines by planning ahead. Ask your trusted payroll services provider for help identifying areas to watch. Depend on your employee timekeeping software to collect and store the data. Leverage both systems for quick responses to deadlines and future planning.
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. Prepare for audits with real-time reporting.
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. 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. Pay Employees Part of Their Earned Wage
Talk to your employees and see if some can wait a few days. Do you have enough money to pay them 50%? Something is better than nothing. Be honest with them. Offer to pay any overdraft fees when you have the cash.
2. Fire Sale Inventory to Raise Quick Cash
3. 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.
4. 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.
5. 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).
6. Borrow From Your Retirement Account
7. Sell Your Car
8. 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. 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 contains TimeWorksPlus, which we described previously.
WorkforceHUB includes compliance features to help you avoid legal trouble. Instant reports and historical tracking help you stay ahead of deadlines. Built-in regulatory reports help you meet compliance standards.
Payroll Processing Solution: WorkforceHUB And a Reliable Payroll Services Provider
WorkforceHUB includes 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.
By Annemaria Duran, Cary Snowden, and Liz Strikwerda
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