Payroll is often one of the largest expenses associated with running a business. Of course, wages and employment taxes make up the lion’s share of your payroll costs; however, the hidden expenses associated with processing your payroll can also be impactful to your company’s bottom-line.
Whether you have five employees or 500, there are steps you can take to reduce the administrative costs associated with the payroll process.
- Take an Inventory
Complete payroll processing involves multiple steps, forms, and tax/legal/compliance requirements. Whether you personally handle it, or have a staff member help you, the first step in saving money and taking control of your payroll procedures is to get a complete and accurate picture of your needs. Taking an inventory of your payroll wants/needs will help you begin to start thinking about the specific costs associated with each task included in your payroll procedures.
- Ensure Accurate Data
The demographic data you collect from your employees is a crucial step in the payroll process. Ensuring that the social security number, date of birth, address, and other critical information is accurate for each employee can save you a substantial amount of time (and we all know, time is money) and hassle. Making sure you obtain and submit the correct information from your employees is the first and easiest step in saving money on how you process your payroll.
- Understand compliance requirements
Processing payroll includes making tax payments, wage adjustments, paying bonuses, salaries, and commissions, etc. It also includes a number of potential deductions.
Deductions and adjustments will likely vary by employee, and making mistakes can be very costly. The more employees you have and the more states you operate in or your employees reside in can make this process more complicated and more susceptible to mistakes. According to the IRS, an estimated 40% of small businesses pay an average penalty of $845 for filing payroll taxes late or incorrectly. Understanding the full weight of state and legal requirements will help you avoid penalties and save money because unfortunately for you, "I didn't know" typically doesn't fly with the IRS or state tax agencies.
- Utilize direct deposit
Direct deposit is a fairly easy sale for most employees. It allows them to have their paychecks deposited into their account without going through the hassle of driving to their financial institution or other financial services provider. That's probably why more than 60% of employees in the U.S. use direct deposit as their preferred method of payment. Direct deposit is not only convenient for your employees, it also helps to reduce your exposure to check fraud and lost checks. There is also the time savings to consider. Writing out or printing, folding, stuffing paper checks into envelopes, and then subsequently arranging for their timely delivery is labor intensive, and just like time, labor is money, too. Additionally, direct deposit saves the paper costs of the checks and envelopes, and any costs associated with stop payment fees that accompany lost checks.
- Quantify your time
If you're processing your company's payroll, it's important to accurately quantify how much time the process is costing you. Using the information you learned in step 1 should help you determine exactly how much time you are spending on payroll matters. Then, think about the time you spend staying on top of changing rules and regulations, time spent correcting mistakes, reissuing lost checks, record keeping, and any other issues that may arise. Getting an accurate—or close to accurate—figure for the time you spend processing your business' payroll is important because it can help you determine the opportunity cost benefit of potentially hiring someone to help with those tasks.
- Consider outsourcing
Many companies have considered outsourcing certain HR administrative functions including payroll processing. The fact is, while processing your employees' payroll is a necessary business function, it is not revenue generating. Wouldn't you rather spend your time engaging in business and employee development activities, rather than completing tax forms? Outsourcing your payroll functions to a human resources company can help your business realize payroll administration cost savings, reduce your stress level, and give you the opportunity to grow your business and better serve your customers.
Whether you choose to process your payroll internally or outsource, there are ways that you can save two of your company's most valuable resources—time and money.