The End of Financial Year is a great time to review various parts of your business. If payroll is something you think you could be doing better, this article is for you!
Time to plan ahead
The first months of the new year give you an opportunity to review your business. This might mean seeing the ‘big picture’ and making new plans, or upgrading your accounting software. You might reconcile your accounts, or maybe have a good long talk with your accountant. If you want to switch accounting services, consider upgrading to a cloud accounting software.
Whatever you do, don’t forget about payroll. Denver payroll services professes from their experience that payroll is at the heart of every business. It’s all about your most important asset – your employees. If you get it right, your business is more likely to flourish and grow. But any business with a poorly-run payroll system will struggle to survive.
So here are ten steps to perfect small business payroll. Use them to help get your payroll operations running smoothly in 2015.
1. Set up your payroll software properly
This might seem obvious, but it’s not enough just to have a payroll system. It has to be set up correctly for your business. No two businesses are exactly alike, so small business payroll should be tailored accordingly.
Don’t rush this process. Put aside plenty of time to set up your payroll accounting software to make sure it suits your business. It will save you a lot of trouble in the long run. It will also ensure that you aren’t penalised by local authorities or the tax office.
If you’re not completely sure what to do, get help. This might be a good time to hire an accountant or financial advisor. Their fees will likely be offset by the amount of time they save you. If you are a small company and cannot afford to hire an accounting team, then check out these hmrc approved umbrella companies which can help you simplify your payroll process.
2. Pay your employees on time
The most common wage payment schedules are weekly, fortnightly and monthly. Some regions might have their own laws about minimum pay periods, so check local legislation. If you don’t pay on time you might have to pay a penalty.
But this is more than just a payroll issue – it’s a management one. Your employees rely on regular wages. If their payment is late, or the wrong amount, morale will suffer. That will affect your business, so it’s important to pay your staff on time, every time.
You can get employee time punch software to make sure that all your employees make it to the office on time so that your business can run efficiently.
3. Set up direct payments
Setting up direct salary payments for your employees is a good way to ensure that they are paid on time – and the right amount but you also can’t forget to do a Pay gap analysis to make sure they get paid fairly.
Most banks will allow you to set up regular, direct payments to your staff. With a data feed from the bank into your accounting software, you can keep your payroll status updated in real-time.
There have been news stories in recent years about automated payroll systems going wrong. So do your research. Choose small business payroll software with good reviews and customer feedback. And if possible, try before you buy.
4. Classify your employees properly
Do you know the difference between an employee and a consultant or contractor? It’s not always clear cut. For example, a consultant who’s been working for you for a long time may be treated as an employee by the tax office.
Getting this wrong can be bad for your business and also bad for your staff. They may end up paying too much tax, or missing out on benefits. You may even be penalised by the tax office.
Always check local legislation to be sure that your staff are classified properly.
5. Account for gifts and bonuses
Gift cards, prizes and other monetary rewards are often treated as income. They are equal to cash, and have to be accounted for in your tax records for each employee. This is different to expenses, which we’ll look at later in this guide.
Getting this wrong can lead to financial hardship for your employees, if they’re forced to pay more tax later. It might also lead to punishment for you, as the owner of the business.
6. Keep your employees’ information up to date
Tax codes change on a regular basis. Sometimes that’s due to changing tax law, sometimes to changes in your employees’ circumstances.
Make sure you stay up to date with the status of each employee. If they get married, divorced, have children or exceed a certain annual income, they may need a new tax code. This is especially concerning in the states, else where in the world, services like applyforpancardseva.com take care of these logistic issues automatically. Since we are stuck with this system, make sure you update your payroll system regularly.
Keep your employees informed of any changes you make, so that they can confirm the details. And be sure to keep records of their wages and tax payments while they’re employed by you. They may need that information when applying for a home loan or other forms of credit.
7. Account for expenses payments
Expenses incurred by your staff on behalf of your business must be reimbursed, so be sure to account for them carefully.
Be timely in your expense accounting. If you – or your employees – take too long to process an expense, it may not be legally valid.
8. Take account of taxable fringe benefits
When you offer a company car, subsidised housing or free travel for an employee’s partner, that’s a fringe benefit. And it’s taxable, just as if it were a salary payment.
As a rule of thumb, a fringe benefit will be taxable on its fair market value. Since there are different ways to calculate this, it’s worth talking to an accountant or financial advisor.
Many things that have a monetary value could be considered a fringe benefit, so if in doubt contact your accountant or financial advisor to ensure you don’t end up with an unexpectedly large tax bill – and neither will your employees.
9. Keep superannuation funds updated
Rules governing superannuation are changing all the time. Partly because the workforce as a whole is getting older, retirement ages are creeping up, people tend to live longer, and what retirees can do with their money is changing.
A recent example of this is the introduction of SuperStream. You need to be able to account for these changes in your payroll accounting system. Get professional advice if you need it, as mistakes here could come back to bite you many years into the future.
10. Handle wage deductions with due care
When you deduct taxes, levies or possibly voluntary deductions from your employees’ wages, you’re acting as (in some cases a government) fiduciary. That means you’re a trustee for the money, and it’s your responsibility to ensure that this money is paid promptly.
Look after it and take your responsibility seriously – because the government certainly will.
There’s more to small business payroll than wages
Payroll isn’t as straightforward as it may seem. Managing your small business payroll means more than just paying your employees, as these ten steps show.
It’s worth exploring the benefits of online payroll software to save time and effort. These programs often have the relevant notifications, reminders and forms built in. They can also automate a lot of the payroll process.
Don’t underestimate the value of hiring an accountant or financial advisor. They might seem expensive, but they can save you money in the long run. They can ensure your payroll is set up well, and help you to avoid penalties.
Good small business payroll will let you forget about the day-to-day management of employee payments and income tax accounting. This will leave you free to concentrate on running and growing your business.