There is plenty to worry about in a small business, but let’s not let payroll be your biggest concern! The following are six payroll concerns that you may have and what to consider when addressing them.
Outsourcing payroll has its pros and cons, but many small businesses do it because it’s easier than hiring a full-time person to manage paying employees correctly. Here is a great website that talks about outsourcing payroll.
Experience and knowledge
Payroll professionals have vast knowledge of what payroll for a small business needs to include and how to be compliant with payroll laws and regulations.Simple systems
Outsourcing payroll may reduce the need for internal payroll employees. Payroll vendors generally use systems that are easy to learn and process payroll quickly and accurately. You don’t want to mess around when it comes to paying employees. While you have to pay to outsource payroll, it’s probably a lot less than hiring an in-house person who only works on payroll.
Some payroll companies only offer package deals that small businesses may not need. This increases the cost of outsourcing payroll and includes services that aren’t often needed.
Sometimes payroll companies fail to pay taxes on time or correctly, and this usually ends up being a liability for the business owner instead of the payroll provider.
Employee vs. Contractor
You or your business may be a contractor to another company, organization or even to an individual — that’s how a lot of small businesses operate. But what about your workers?
A lot of small businesses bring workers on and decide they are contractors when they really are employees.
On the surface, this saves the small employer from having to pay their share of Social Security and Medicare taxes (also known as FICA), unemployment taxes, and likely, workers’ compensation, to name just a few obligations employers have to their employees. Also, contractors generally are not covered by labor requirements.
But, because these really are employees, subject to the control and direction of the small business, there can be exposure to devastating back taxes, severe penalties and lawsuits.
Small business owners should rely on general tests to determine whether a particular worker is an employee or an independent contractor. For taxes, check out the guidance in IRS’s Publication 15-A on figuring out if your worker is an employee subject to federal income tax withholding, federal unemployment and FICA taxes.
To help decide if your worker is subject to federal labor law, such as the Fair Labor Standards Act, see the Labor Department guidance on this matter.
Finally, states have their own criteria for determining if a worker is an employee for unemployment insurance and workers’ compensation purposes. Due diligence in clarifying worker status can save a lot of headaches later on for small businesses.
Using direct deposit has become increasingly popular, with 93% of Americans using direct deposit in both small businesses and large businesses. Direct deposit typically does cost an extra fee, however, it’s a lot less costly than disbursing a paper check.There are many pros and cons to using direct deposit, and here is a website that goes into detail about it.
Saving time and money
With direct deposit, there is no longer a need to print and mail checks. Your employees will get their money much faster and you won’t be spending money on paper checks, envelopes or postage. Direct deposit can also help your employees save money. They can easily split part of their check and automatically send it to a savings account.Security
According to a Nacha survey, 83% of employees see direct deposit as more secure than paper checks. They don’t have to worry about their check getting lost in the mail or losing it themselves. Direct deposit checks are much less vulnerable to fraud.
Direct deposit is better for the environment! According to Wagepoint, a small business with 10 people that doesn’t use direct deposit and pays employees twice a month would use 10.7 pounds of greenhouse gases each year. That is the same as driving almost 40 miles in a car. Switching to direct deposit would reduce this number as well as the amount of solid waste and wastewater used.
While seen as much more secure than processing and delivering paper checks, using direct deposit comes with having to provide sensitive information. If your small business doesn’t have proper online security measures in place, there is the risk that this sensitive information can be hacked.
Risk of overdraft fees
Since direct deposit sends money to your employees automatically, you risk overdraft fees if the account is not properly funded. If there is an insufficient amount in the account that direct deposit payroll comes out of, this will cost you extra money. Paper checks allow for more control over this.
Paid Time Off
Giving employees paid time off can be stressful for small businesses that have limited time and resources. Many small businesses are already stretched thin, making it difficult for employers to give paid time off. However, this is something that employees look for. There are federal and state laws that require employers to give a certain amount of paid time off. Workful.com is a great resource for those looking to see what they need to give their employees in terms of paid time off.
With resources stretched thin for many small business owners, it can be difficult to keep employees satisfied with their pay. Unfortunately, about 43% of small business employees are dissatisfied with their compensation. This website talks about many ways to keep your employees happy without having to give them raises. Some of these ways include:
- Celebrating special occasions and accomplishments
- Allowing for flexible schedules
- Giving performance-based annual bonuses
Exempt vs. Nonexempt Employees
Deciding how to classify your employees can be tricky. The main difference between exempt employees and nonexempt employees is that nonexempt employees are eligible for overtime pay.
Nonexempt employees are covered by the Fair Labor Standards Act. They must be paid time and a half for any time worked over 40 hours in a week. Nonexempt employees are typically paid hourly.
Exempt employees are not covered by the Fair Labor Standards Act and are not eligible for overtime pay. Typically, these employees are salaried. They are not limited to 40 hours a week, something that many small business employers find advantageous. They need to make at least $684 a week to be considered exempt.
This is a great website that can give you more information on this topic.
You have a lot to think about when managing a small business. Hopefully this helps make payroll one less thing you have to worry about!