Many small business owners manage payroll administration themselves. This is usually the case when you have one or two employees to pay, but it’s not uncommon for small business owners with more employees to continue handling this task as the company grows.
If you’re just starting out, you might be wondering, “how do I do payroll?”
Payroll usually occurs in three steps. There’s preparation, payment, and post-payment. In each stage, you’ll have many tasks to manage. As you prepare to pay your employees, you’ll need to calculate their hours and account for vacation pay, sick days, and so on. Then you’ll need to make deductions, including taxes, insurance and benefits, and even pension plan contribution if you offer one. Payment and post-payment may seem easier, but they present their own challenges.
What are some of the most common challenges in payroll processing? This list will guide you through, and show you how you can overcome these hurdles.
1. Misclassification Is One of the Most Common Challenges in Payroll Processing
One common challenge in payroll processing is the misclassification of employees. You may believe you’re working with a contractor, but the law says he’s actually an employee.
You have different obligations to workers classified as employees, which will change how you handle payroll, benefits, and more. Review the classification of all employees, and make sure you’re compliant.
2. Getting Things Done on Time Is a Huge Hurdle
Your employees want to be paid on time, which means you need to complete payroll no matter what else is on your plate. This is the number-one reason people outsource their payroll activities. If you’re still handling it in-house, however, you’ll know it’s one of the most common challenges in payroll processing.
There are other deadlines as well. For example, you’ll need to remit tax deductions in a timely manner. The same is true of 401K contributions. When you’re a small business owner strapped for time, this may feel insurmountable.
3. Your Timekeeping Isn’t Accurate
How do you keep track of the hours employees have worked? Some people use a punch-clock system, while others might still use pen and paper. You may even ask employees to record their hours themselves, sometimes in an Excel spreadsheet.
The problem with most of these methods is that they aren’t always accurate. Inaccurate timekeeping leads to inaccurate payroll. You may miscalculate how many hours an employee needs to be paid for. You’ll also then miscalculate their deductions, as well as time accrued for vacation.
Better, more accurate timekeeping is a must. You may want to consider automated timekeeping to solve this problem.
4. The Management of Overtime Is Challenging
Another of the most common challenges in payroll processing is the management of overtime. This means you need to monitor how many hours an employee is working, and then determine if they qualify for overtime. If so, you’ll need to determine what rate of overtime pay they’ll receive.
This can be tricky, although it’s all laid out in the law. You’ll want to keep a close eye on employee shifts and overtime rates. Better management of overtime will help you reduce your overhead and run a more efficient business.
What’s the Solution?
The good news is that these common challenges in payroll processing all have an easy fix. You can conquer most of these challenges by introducing good payroll processing software.
The right software will include features to help you manage your timekeeping and scheduling, as well as tools to ensure compliance. Payroll processing has never been easier.