Small Business

Top 6 Payroll Concerns for Small Businesses

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

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. 


Package Deals

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.

Direct Deposit

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. 


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. 

Environmental sustainability

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.


Security risks

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. is a great resource for those looking to see what they need to give their employees in terms of paid time off. 

Pay Satisfaction

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

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

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!

Payroll Service

4 Compliance Concerns That Keep Payroll Professionals Up at Night

Let’s face it: as a payroll professional, you have a lot of worries associated with your job. The payroll department is the backbone of every company. It’s highly unlikely that there’d be any employees in the building if your team wasn’t there doing its job every day!

Let’s look closer at four compliance nightmares that may be keeping you up at night and help you get back to counting sheep and drifting off to dreamland:

Nightmare #1: Inaccurate payroll record-keeping.

While every department has its version of a clerical error, those involving payroll can easily snowball into much larger problems for the company. Depending on your state, you may be required to maintain employee payroll records for four to seven years, creating an even larger window of error for inaccuracy, lost files and other disasters. Having 100% accuracy as a goal is a lot of pressure on a team, especially if you are working with a manual system.

Electronic record-keeping can help streamline this process as well as give employees access to their own records and paperwork. Not only will this help you be more accurate and make it easier to keep things neatly filed, it will also reduce the frequency of times employees come to you to request old records. Having a timeclock system that automatically creates payroll records can also help eliminate extra steps and reduce the margin of error in your records.

Nightmare #2: Ever-changing legislature around payroll rules and regulations.

This is probably the most frustrating issue on the list and, unfortunately, the most constant. Across the country and from state-to-state, legislators are regularly re-writing the rules you need to follow. Non-compliance can be extremely costly and involve lawsuits, employee settlements and a myriad of issues that could have been avoided. The last thing anyone in your C-Suite wants to hear is the word “lawsuit.” However, there are some simple steps you can take to protect yourself and your company.

Using HR and payroll software that is automatically updated with these new policies and information can help reduce the risk of accidental and unintentional errors. Not only does that help you avoid missing new updates to payroll procedures or legislation, it also reduces the work of having to dig for this information yourself. For an added layer of protection, we also suggest checking reputable news sources for updates to legislation and policies.

Nightmare #3: Privacy breaches on your sensitive data.

While most people fear their personal information being stolen by hackers and other cybercriminals, you’ve got a whole team’s worth of information to worry about protecting. Not only are 52% of security breaches are caused by human error, but identity theft and money rerouting through a payroll system hack can be an especially egregious crime to clean up after.

So what can you do to prevent this? Well, one of your first lines of defense should be educating your employees to help reduce the risk of phishing scams, account hacking and various other forms of cyberattacks. Encourage them to protect sensitive passwords and other personal information. You should also limit who has access to these sensitive records as much as possible to further manage the risk of a data breach or identity theft. Lastly, using the most up-to-date payroll systems will help ensure that your software can protect your company from ever-evolving forms of security breaches.

Nightmare #4: Making an error when filing taxes.

Whether it’s a late payment or an error in worker classification or withholding, taxation mistakes can be a doozy to clean up and can even lead to audits and fines. In fact, mistakes in employer payroll tax cost small businesses a collective $6 billion in civil penalties in 2015. Not only that, but discovering these errors can mean hours of extra labor for your team members, who will then have to scramble and work backwards to correct them.

However, there are steps you can take to avoid civil penalties and all the associated headaches. This is another instance where automating your processes with tax software can really serve you. Since the software will include up-to-date regulatory and tax functions, you will greatly reduce the margin of error for yourself and your team. Regularly checking the IRS website for new, state-specific tax information can also help you and your team stay compliant and avoid the snowball effect of problems that a taxation error can cause.

Do you have other payroll headaches that keep you up at night?? Let us know in the comments down below or fill out the form and we will include your suggestion into our next article.

On Demand Payroll

How Full-Service On-Demand Pay Works for Our Payroll Team

By April Smith
Director of Payroll and Benefits, Senior Lifestyle

As a payroll professional considering an on-demand pay solution for the first time, my mind swam with thoughts of special deduction files, massive payroll system changes, funding issues, more pay reconciliations, and a lot more employee questions coming into our department. I was thinking ‘I don’t have the bandwidth to absorb this, and neither does my team.’ It was like a nightmare to me. But it was a critical need for our employees, so I took a deep breath and trudged on.

As we began the journey of vetting providers, we determined that the growing number of on-demand pay offerings can be grouped into two general categories: those who offer a comprehensive full-service approach and those who offer the technology and make you put resources toward it to make it run. 

Most of the vendors offering on-demand pay are self-service and require extra work from payroll and the employer for each transaction, validating those nightmarish thoughts I had initially, such as more pay reconciliations and the need to develop deduction files for employees using on-demand pay. In looking at those ‘solutions,’ I thought to myself: ‘I’m not going to turn into a bill collector’ and deal with collections and having to reconcile each transaction every pay period.


We opted for the fine-dining version, the full-service option. I consider us (the employer) to be the silent partner. It’s an employee benefit I don’t have to monitor. The most time I spend on the daily pay solution, which our employees are embracing by the thousands, is to verify employee accounts and follow up when the on-demand pay provider team sends me information. In the past six weeks, I’ve literally spent less than one hour thinking about our on-demand pay benefit. 

The provider’s call center, not my team, handles all employee inquiries, and they are very careful to continuously and accurately track earnings, making them accessible to employees and seamlessly accounting for the amounts, so my payroll team doesn’t have to take any action. That’s full-service.


But there was another issue we needed to consider. I also am concerned for our employees. Most self-serve vendors place arbitrary limits on amounts employees can access, when they can request on-demand payments and the payment methods they can use. While I understand the surface reasoning for doing this, I am troubled by it. 

We determined that any program we were going to choose needed to come with the maximum benefit to employees, meaning no arbitrary limits on amounts earned that employees can transfer or limits on their ability to draw whenever they choose. 

I also oversee benefits for my employer and we know that some workers take advantage of each benefit offered and some don’t take advantage of any of these benefits. This all is because each employee’s particular life circumstances are different. So when it comes to on-demand pay, who can dictate to these employees how much and when they can use their own earnings? 

We couldn’t accept a one-size-fits-all approach here because each employee has different circumstances. People’s work hours can vary, their home situations may have two incomes (or not), their stages in life and career are all at different points.


Early in my career, my focus was on our growing family, and a lot of my unexpected spending came from diapers, medical care and prescriptions for my children. I would have used an on-demand pay benefit to stay on top of these had it been offered. Now that my children have grown, my financial needs have changed, but the bills and unexpected expenses still come at times that don’t necessarily sync with payday. 

It’s not an employee’s fault that our society has adopted the practice of paying employees at set intervals, such as bi-weekly, or that bill due dates don’t always sync with the employee paydays.


We wanted the employees to have a customized solution for them, and the one-size-fits-all approach that most on-demand pay providers apply to available amounts and frequency of use was not going to do that. Our full-service daily pay provider offers up to 100% of anticipated net pay and does not limit the frequency of use.

As more payroll professionals, like me, are put in a position of considering an on-demand pay solution, know first that this is because of the clear upside to employers and HR this benefit brings:  a reduction in employee turnover, better employee engagement and easier recruitment, to name a few. But the impact each offering has on the payroll operation can vary widely. So be deliberate in your analysis and know the consequences of going with a provider that does not offer the full-service on-demand pay we have adopted.