How you manage payroll may be one of the most critical operations of your business. And effective payroll management can be a challenge even with the best software. Why? Because it requires more than a software solution to implement efficient, accurate, and cost-effective processes.
How To Manage Payroll Like A Pro
Effective payroll processing isn’t just an essential business function. It is critical for maintaining employee morale and confidence. Your employees expect to be paid promptly, regularly and accurately. An ineffective payroll process that is slow and overly complex can result constantly frustrated workers and occasionally angry ones when mistakes are made.
Complaints and employee claims are costly and unnecessary issues for your payroll department.
According to one report, payroll processes account for up to 35% of an average HR department’s time. Given that the scope of your HR department’s responsibilities are probably expanding over time, it is essential that core functions such as payroll be managed effectively. Here are four payroll processing practices to help you accomplish just that:
1. Organization – Payroll managers and staff must work with a vast amount of information on a daily basis. There are dozen, if not hundreds, of names, numbers, records, and reports to manage. In addition, there are the numerous policies, rules, regulations and deadlines to comply with.
Being optimally organized begins with having an effective system in place to keep track of it all. This can include tools to implement a prioritized daily, weekly, monthly and quarterly task list. This can be done using a computer program such as Microsoft Outlook. Making full use of software tools for managing the various types of information should be a priority, as well.
Regardless of how much information you have stored virtually, there will still be a need for managing hard copies of various forms. Establish a simple and “universal” filing system for storing them in chronological order. In other words, be sure everyone in your department is using the same system for filing. While it may seem a bit “old school”, clear and legible labels on everything is essential.
This is important for your day-to-day operations, but also for when you’re audited. If everyone knows where everything is, and they can easily find and identify it, retrieval of that information becomes a simple matter. In addition, avoiding clutter is important. Another process to have in place is a system for identifying and disposing of out-of-date items. Some files can be removed to a “long term” storage location if they need to be kept on hand for a specified period of time.
2. Investigation – You should consider conducting regular, ongoing audits.Frequent employee complaints about payroll are signals you should be conducting regular audits of the entire process. One of the best way to resolve issues is with a detailed work flow analysis. Using a flow charting tool, or similar method, you can list each step of your process from start to finish.
This type of analysis can enable you to spot redundancies, “bottle-necks”, and other problems with your payroll process. Oftentimes, reviewing and assessing your process, step-by-step, with your staff will result in an improved and innovated approach.
If your company uses a manual time card system you know that employees will sometimes enter incorrect information. However, simply using an automated system does not eliminate the need for regular audits. There are still potential errors that can be made such as incorrectly classifying employees, failing to adjust pay rates, or any number of other tax or benefit items.
Investigating the cause and source of errors should be a fundamental approach to how you manage payroll. While you and your staff may never be 100% accurate all the time, treating errors as a strategic opportunity for process improvement requires forethought and anticipation, as opposed to simply defaulting to a “fire fighting” mode when mistake do occur. Regular audits are a part of that approach.
3. Information – The IRS and other government agencies are strict about enforcing payroll tax policies for small businesses. You already know that it is critically important for you and your staff to thoroughly understand your company’s role in compliance. This also means you must keep informed of all the changes in federal and state government policies.
Another information requirement is to be up to date with all government deadlines, as well as current tax filing, record keeping and reporting requirements. This is best accomplished by designating someone on your staff as the individual tasked with regularly researching, compiling and updating this information. All the other staff members can then be advised of pertinent changes and updates through regular meetings or email updates. (see #4 below).
Newsletters and publications from both government agencies as well as professional organizations are valuable resources of information. While it can be overwhelming, having a system in place for reviewing and archiving relevant notices, articles, and agency updates will allow you to have the information you need in a convenient and accessible location. And knowing who or where to call when the answers are not readily available is critical, as well.
One last point here: ongoing education for you and your HR/payroll staff is essential. Staying abreast of industry and professional changes is critical for maintaining an effective payroll process. Being regularly educated in the latest tools, technologies, and best practices should be seen as a strategic investment in you, your staff, and your department.
4. Communication – It is not enough to simply be “good” at what you do. Without clear and consistent communication no organization, no business, no department can function at it’s best. It absolutely essential for effective management of your department’s processes to have effective communications processes in place.
One often overlooked key is to provide your employees clear, written explanations of your policies and procedures. Too many businesses rely solely on one-off verbal instructions. Once is never enough! This is why it’s good to periodically repeat these communications.
Communication for payroll management extends beyond your department, however. It is important that you, or someone associated with payroll, is easily accessible. Employees should have someone that they know they can approach with questions or issues regarding payroll and related processes.
Again, clear and consistent communication is essential and can eliminate, or at least minimize, many payroll issues, such as underpaid taxes or employee mis-classifications. This communication should include information on:
- How the payroll process works
- How employees are classified
- Employee reporting responsibilities
- Company procedures for handling payroll mistakes
If it isn’t already, the company payroll policies should be put in writing and displayed prominently in your workplace. In addition, you should ensure that each employee has a written copy.
When The Requirements To Manage Payroll Outgrows Your Resources
For many small businesses, payroll is a challenge for their HR staff – oftentimes consisting of just one, or two, employees. For most other businesses, it’s still the specialized functions such as medical benefits or tax reporting that are prone to error, especially if there are multiple states involved.
These businesses often find that outsourcing is a viable and effective option. It can allow a company to lower their overall payroll costs and provide more accurate and timely service to their employees.
In addition to the tips listed here, by outsourcing you can include the peace of mind of knowing that your payroll and other HR processes are being handled competently, accurately, and on time. On top of that, you can be assured that the accountability and liability for compliance rests with your vendor, freeing you from the constant pressure of staying fully informed and compliant with the ever changing – and growing – rules, regulations, and legislation.
Finding a Reliable Payroll Management Service
As a business owner or payroll manager you have a number of options for your payroll functions. Software that can be installed in-house, or cloud-based programs offer a good alternative. But if you really want to take full advantage of the ben