You know it’s payday when you see employees walking around the office with a little more pep in their step. Everyone looks forward to payday—well, everyone except the small business owner with cumbersome payroll processes.
Sound familiar? If you’re a small business owner who becomes Scrooge on payday, then you need to make some payroll process changes. Let us be your Jacob Marley—with a few quick and easy tips, we can help make payroll a seamless part of your routine. Follow these 7 payroll tips, and you’ll be dancing down the halls with your employees come payday…or you’ll at least become less of a Debbie Downer.
1. Hire a Payroll Service
Payroll is tedious, time-consuming, and downright difficult. As a small business owner, you need to focus on the big picture—not deposits, payroll taxes, withholdings, W-9s, and 1099s.
The more you grow the business, the more employees you hire, and the more employees you have, the more time you spend on payroll processes. Not a bad problem to have, per se, but it’s still a problem.
Make your life easy and hire a payroll service to manage all the payroll details. Not only will it save you valuable time, but they’re the experts—they’ll help you avoid mistakes and resulting penalties.
2. Get Detailed with Payroll Budgeting
Payroll is often every small business’s largest expense and can account for as much as 70% of total business costs. 70%! That’s no small sum. Payroll expenses include salary, bonuses, commissions, benefits, taxes, and more.
Sit down with your accountant and get very specific with your payroll budget. Look at your geographic and employment taxes, variable costs, and even software licenses. You don’t want to hire more employees than you can pay, and you also want to keep your payroll expenses down to drive your profit margin up.
3. Remember to Withhold Payroll Taxes
Don’t forget to withhold payroll taxes from your employees’ paychecks and to pay your relevant taxes. Employee tax withholdings usually include FICA, plus federal, state, and local income taxes (where applicable).
Fail to pay your taxes, and you could face hefty fines. Stay on top of your bookkeeping to make sure you never miss a deadline or miscalculate your payroll tax amount.
4. Claim Your Payroll Tax Deductions
Save money and lower your tax bill by remembering to claim your payroll-related tax deductions. Small businesses can write off:
- Employee wages
- Benefits programs
- Employer’s portion of the payroll tax payment
- Online payroll tools
- Work-associated meals and lodging
5. Start with Freelancers
Before you go and hire a large team, begin delegating tasks by hiring freelancers. You aren’t required to withhold taxes for independent contractors, and you can avoid all the other full-time related expenses: benefits, retirement, training, etc.
Experimenting with freelancers will give you valuable recruiting experience without the risk. And if you find a high-quality freelancer you like to work with, you can always offer them a full-time position later.
6. Obtain a Business Line of Credit
Cash flow ebbs and, well, flows. If you’re having a rough month, use a business line of credit to help cover your payroll expenses.
A business line of credit is a super flexible form of financing that every small business should have on hand. You can use it on practically any business-related expense, and it’s revolving—which means you can use it as many times as you want without the need to reapply. Just use the credit, repay what you used, and get instant access to the funds again.
With a line of credit, come rain or shine, you’ll always have money on hand to pay your employees. Don’t wait until you need it to apply—go ahead and secure a line of credit now.
7. Keep Meticulous Financial Records
Despite even the highest due diligence, the IRS may decide to audit your small business. To avoid hefty fines and penalties, keep detailed records of your payroll, business transactions, and tax filings.
Stay on Top of Your Payroll
Whether you decide to outsource payroll or do it yourself, make sure it doesn’t fall by the wayside. The IRS collects 3x more in payroll taxes than it does in business taxes—it’s obviously a common pitfall for many small business owners.
Proper payroll practices not only protect you from trouble with the IRS, but they also make sure your employees get paid on time. Follow these 7 tips, and you’ll streamline your payroll process and avoid the problems that trip up so many entrepreneurs. Plus, you’ll feel less like Scrooge and more like an altruist come payday.