How to Take Charge of Your Payroll Process

Growth requires automation.

 

It just does- and there’s no way around it.

 

No business process is more complicated and time consuming than payroll, and it’s critical that you apply technology to this process. In fact, you can limit your ability to grow, if you don’t automate payroll, and many companies outsource the process completely.

 

This post discusses the five important steps for payroll from a QuickBooks article I wrote, and a bunch of reasons why you need to automate payroll- now.

 

Five Important Steps for Payroll

 

To evaluate your payroll system, consider how your manage each of these important tasks:

• Data collection: When an employee is hired, you need to collect information to withhold the proper amount of federal and state income taxes, and possibly withhold dollars to pay for company-provided benefits. If, for example, you offer a retirement plan, a worker may want payroll dollars withheld and invested in the plan.

 

• Calculating net pay: The net amount you pay each worker is the gross pay less tax withholdings, less any benefit payment withholdings.

 

• Payments: You must pay each worker by check, or by an electronic transfer to a bank account.

 

• Reporting: Federal and state tax withholdings for each employee must be reported to the IRS and state department of revenue. In the same way, retirement plan payments are reported to the investment firm. Note that retirement plans typically include both a worker and an employer contribution amount.

 

• Withholding payments: All of the tax and benefit payments must be forwarded to the taxing authorities, retirement plan firms, and to any other benefits providers.

 

Keep in mind that your business must address changes to payroll, which complicates the process and requires more time. Every year, employees may be added, promoted, or let go. Workers also may change the tax and benefit withholdings based on salary changes or family changes.

 

Your payroll data is a constantly changing, and that’s an issue you have to manage.

 

If you manage a business and want to increase your productivity, I highly recommend QuickBooks accounting software. Read this article to decide if you need the desktop or online version of the software.

 

See the Warning Signs

 

Successful business owners have high degree of self-awareness, and the ability to notice problems and fix them.

 

If you’re noticing problems with payroll processing, make changes before you spend more time and money on a flawed system.

 

It reminds me of my neighbor’s recycling plan.

 

Every week, he puts out a recycling bin that is overflowing with trash- so full that the lid can’t close. Without fail, trash blows into his yard, and across the street into my yard.

 

I pick up recycled boxes and cans, and so does he.

 

And next week, we do it again.

 

It’s nuts- and many business owners do the same inefficient process with payroll.

 

Here two BIG warning signs which indicate that payroll is a problem:

 

• Are you gaining efficiency? When you do the same routine tasks over and over, you should become more efficient. If, for example, you’re processing payroll for the same 20 people each month, you should pick up some speed as you do it more often. If you’re not gaining efficiency, you have a flawed system.

 

• Repeating mistakes: OK, calculating the wrong dollar amount withholdings is an honest mistake, and you can fix it quickly. However, if you’re making the same mistake over and over, you’ve got a payroll-processing problem.

 

See the warning signs and take action.

 

Use online accounting software to dramatically increase your company productivity. Find out more here: QuickBooks Online Edition – Free Trial

 

 

Don’t Use Excel for Payroll

 

If you started your business and got in the habit of using Excel to calculate payroll, it’s time to make the difficult transition to a better process.

 

Now, that doesn’t sound very uplifting, but using Excel can create big problems over time. I wrote about this topic for QuickBooks, and listed these specific issues:

 

1. Data is scattered.

Using Excel makes it difficult to automatically link the steps needed to process payroll. For example, the data you collect about withholdings will not post automatically into your payroll calculation spreadsheet. Each employee’s withholdings will be different and can change for many reasons, creating lots of error-prone, manual work. The process involves more steps than an automated system, which also makes adding employees difficult.

2. There is a high risk of human error.

Many businesses use linked spreadsheet tabs to process payroll. If the calculation of net pay is in tab number one, for example, the spreadsheet will require additional tabs to compute federal and state withholdings, FICA, and other amounts. Using a large number of linked spreadsheet tabs increases the risk that an individual link has an error.

3. Manual data entry is a pain.

The data you collect from employees must be input into any payroll system. An automated system only requires you to enter the data in one location. If you use Excel, you may need to manually enter data into multiple locations to process payroll. More manual entry increases the risk of error.

 

4. Your workflow probably isn’t documented.

As your business grows, you may need to hire and train new people to handle your payroll process. An Excel-based system is more complex and requires more steps, and a complex process is more difficult to document and to explain. Using Excel will require you to spend more time explaining your payroll process to new employees.

5. Investors and accountants don’t like it.

Finally, using Excel for payroll may communicate that your company is not investing in the right tools to grow the business. If you need to attract investors, you need to demonstrate that your company operates efficiently. Using Excel for payroll may inhibit your ability to grow the business over time

QuickBooks Online Edition – Free Trial

 

Your Payroll Solution

 

Here’s how to create a more efficient payroll process that allows you to leverage your time and grow your business:

 

Automation

 

Start using accounting software, such as QuickBooks, for all of your accounting needs. Software will help you stay organized, reduce the rate of error, and you can back up your data on the cloud.

 

Work with a payroll company

 

Some businesses immediately use software to process payroll, along with all their accounting needs. Most companies, however, start using software and also contract with a payroll company.

 

In this scenario, you input payroll information into your software, and send the data to the payroll company to calculate net pay. The payroll company handles all tax reporting, and you input the wage expense information into your accounting system.

 

Using a payroll company and software is a great next step for companies that are adding employees, but don’t have a full-time accountant.

 

Hire an accountant

 

At some point, your business may grow to the point that you need a full-time accountant to manage your accounting transactions, create financial statements, and to manage payroll. The accountant will likely continue to use a payroll company, because the cost per worker is cheaper than taking the process in-house.

 

Create a procedures manual

 

You need to create a procedures manual, an important tool for businesses of all sizes.

 

Document your current process in a procedures manual, you haven’t already. The manual documents how to perform routine tasks, and you should include each task you perform and who is responsible for task completion.

 

The manual records what you do, how you do it, and who does it. It’s your company’s recipe for doing business, and it’s clarifies how tasks should be completed.

 

Change is Hard

 

 

Change is difficult, but often necessary.

 

If you don’t improve your business procedures, you may not be able to manage growth. Ask for help, and make the decision to change, so you can increase sales and profits.

 

Take on payroll, and grow your business successfully.

 

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/