Do's & Don'ts For Successful Payroll Management

Do's & Don'ts For Successful Payroll Management

Whatever your business may be, payroll is likely to be one of the biggest, if not the biggest, expense. This alone is enough to make most good business owners want to get it exactly right, but payroll management can be stressful for many other reasons as well. It can be a somewhat complicated process, which can cause employers to stress over any potential mistakes or legal issues. And of course, there is the purely human aspect of wanting to ensure that your employees get paid the money they are due. There are many reasons why payroll is important to a business, so here are some of the biggest dos and don’ts of effective payroll management.


1: Do Consider Your Timeline

One of the first things an employee wants to learn once they know how much they will be paid is how often they will be paid. Typically, there are four ways to do this. Weekly pay means an employee will be paid 52 times a year; bi-weekly means they will be paid 26 times; bi-monthly is slightly different, and will result in about 24 payments; and monthly equates to 12 payments.

Regardless of whether an employee is on a fixed wage or an hourly rate, the number of payments will not affect how much they ultimately receive. But while most employees prefer to be paid as often as possible rather than receiving larger amounts less often, this can be more expensive. The costs of printing cheques, paying direct deposit fees, and the time spent calculating how much is due to be paid all increase the more frequently you do it, so you need to consider which frequency is most efficient for your business.

2: Don’t Miscalculate

By definition, a mistake is something you don’t want to make, but while ordering the wrong amount of stock or sending out the wrong order can be inconvenient, payroll mistakes can be very serious. Miscalculating tax can have serious legal repercussions, especially if it is a recurring problem. Overpaying your employees will obviously lead to unnecessary costs and may leave you wondering why your books do not add up. Underpaying your employees on the other hand not only erodes their trust in you as an employer, but can also have major legal and financial repercussions further down the line. For example, a U.S.-based company called West Marine Products underpaid 707 of their employees by a few cents over 5 years. Despite the fact that 88% of these employees were underpaid $50 or less in this period, totalling $18,828, a class-action lawsuit resulted in a payout of $435,000.

3: Do Get Software

One of the best ways to expedite the payroll process and reduce the risk of mistakes is to invest in payroll software. This might not be necessary if you are running a small operation, but if you have more than a handful of employees, it is probably a good investment. In addition to keeping track of various employees and making more accurate calculations faster, payroll software offers a number of other benefits, such as offering an extra layer of security for sensitive personal information, as well as keeping a record of the total annual expenditure.

4: Don’t Invest in an Expensive System

That being said, there is a plethora of payroll software available on the market, and not all of them are created equal. Different products will have different pricing structures, although most will be some sort of subscription model. These prices will reflect the services offered by the software, such as the number of employees you can register, or the number of administrators permitted to access the software. Many will also offer features such as synchronising with your financial modelling software or paying in multiple currencies. There are many features available that your business simply will not require, so shop around, see what features you really need, and try don’t commit to anything longer than 6 months so you can switch or upgrade your subscription if need be.

5: Do Direct Debit

Most of these softwares will have the option of paying your employees by direct debit, which in most cases is preferable to paying by cheque. Apart from eliminating the need to print cheques, direct debit is more reliable, faster, and much more popular with employees, who will have greater control over where their money goes, and won’t have to try to rush to the bank before closing at peak times each week just so they can use the money the already have.

6: Don’t Trust the Software too Much

As helpful as payroll software can be, technology is never perfect. But while a human may notice a mistake made by themselves or someone else, a computer will simply follow its algorithms, and won’t notice if someone is receiving a large payment despite only being in work for a few hours, for example. No matter what software you invest in, its results needs to be examined by human eyes.

7: Do Make a Backup Record

It is also important not to get too complacent with the features offered by your software. They may boast about their security features and backup procedures, but it is your business at stake, and you shouldn’t put total and complete faith in another company to protect it. All it takes is one hack or bug for them to lose lots of your essential data, so be sure to backup all your files, preferably as both a hard copy and on some sort of external hard drive.

8: Don’t Pay Late

Finally, one of the most fundamental aspects of payroll management is making sure you pay people on time. Many employees simply cannot wait an extra few days or even weeks to be paid, and paying late, especially if it is a regular occurence, will erode your relationship with your staff and give you a bad reputation.

In some ways, payroll management is a lot like being a parent: people will rarely notice the long list of things you got right, and are a lot more likely to notice when you get something wrong. It may often seem like a thankless task, but it is an incredibly important one, and successful payroll management can be the thing that makes or breaks a business.

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