Five Payroll Problems Of Small Business Owners

Payroll is an unavoidable function of any business. Unfortunately, it also requires a lot of time & resources to accurately calculate, and since it’s an ongoing process, there’s never an end in sight for the staff responsible.

While some companies choose to use payroll software to manage their payroll, many other companies still use manual processes to manage their payroll instead.

Inspired by the challenges these businesses face on a daily basis, we’ve created this short list of five areas you’re likely to struggle in should you eschew using small business payroll software.

Collecting T&A Information

While this isn’t much of a problem for extremely small businesses, gathering accurate time & attendance records for each employee every pay period becomes very challenging as you onboard more employees.

This is especially true if your company still uses paper time cards since this data must be manually copied to calculate gross paychecks.

If this data is copied incorrectly, then the paycheck(s) will have to be reissued, costing the payroll department valuable time.

An easy way to avoid this issue is by using a payroll management system with a digital T&A feature, which will record an employee’s time and automatically compute the appropriate compensation.

Accurately Calculating Gross Income

Once all of the employees’ T&A information has been gathered, it can be used to calculate each employee’s gross pay. This process will have to be completed separately for each employee and becomes increasingly complicated the more pay rates you have on your payroll.

Manual calculations are highly prone to errors; even if no errors are made, this process is highly time-consuming and ineffective when compared to the cloud payroll software alternatives available.

Properly Applying Deductions

After the gross pay for an employee is calculated, it’s time to apply the necessary deductions. Unfortunately, these deductions change for each employee; only some deductions (such as federal, state, and/or local taxes) will apply to all employees.

Additional deductions such as health care or child support will need to be calculated as well. However, the rates won’t always be the same, since tax laws are constantly changing.

Payroll employees will need to stay up-to-date on the current deduction rates to ensure that each paycheck calculated is in full compliance with the law.

Much like T&A calculations, this isn’t an issue if your company uses a payroll management system, as the software automatically updates to reflect the latest tax laws.

Distributing Funds On Time

Companies have a variety of options available to them when it comes to compensating their employees. Direct deposit is a popular choice, but some companies may choose to use prepaid debit cards or paper checks instead.

It’s important that each employee is paid on time, which means that the payroll department must rush to ensure all the paychecks are processed in a timely manner.

For small companies, this may not pose an issue, but larger companies (especially those with multiple methods of paycheck distribution) often struggle with this crucial step.

Maintaining Detailed Records

In order to stay compliant with federal laws, every company is required to maintain employee records throughout the years. Although unlikely, this information will be critical if the company is audited by the IRS.

Unfortunately, it can be challenging to produce and manage such a large amount of paperwork on a daily basis, especially if you have a small staff.

However, being understaffed isn’t acceptable for the IRS. You’ll need to maintain the required records or risk being fined.

While there are many other payroll issues that companies may face, these are the top five where most businesses will struggle.

As you can see, these problems pose a big issue when the payroll is being manually processed, but they can be easily solved using software.

With multiple types of cloud payroll platforms on the market today, it makes sense for all but the smallest of companies to make the investment. Not only will it save them time and give them peace of mind, but it can even help save money by reducing staffing needs.

Click here if you’re interested in learning about how payroll software can benefit your business!