Did you know that approximately 49% of workers in the United States would start a new job search after only two issues with their paycheck? As a small business owner, you just can’t afford those kinds of losses. It’s part of why payroll accounting is such an important aspect of owning a small business.
For nearly all small business owners, payroll is a critical part of operations, both administratively and financially. However, managing your payroll is one of the most difficult, confusing, tedious and time-consuming processes being a business owner. It can get even more complicated if you do it manually, which most business owners do.
OnPay conducted a survey that showed that small business owners spend an average of 18 hours per month making and paying the payroll. That equals lots of wasted, precious time you could be spending investing in other areas of your business.
Although payroll can be a challenging task, with the right tools it can become easy and routine. Not only that, but when you’re using the right tools and following the top tips, it can help you reduce administrative problems and increase precision in your operations processes. Let’s walk you through some of the top payroll accounting tips for small business owners.
Why Payroll Accounting is So Important for SMB Owners
Payroll accounting is a critical part of every business, regardless of its size or the industry it’s in. After all, it’s a crucial part in calculating and maintaining your company’s (hopefully) positive cash flow. Not only that, but as a small business owner, you also have to comply with tax rules. So, it’s not something you can take lightly.
Simply put, without an optimized payroll accounting process, it’s hard to manage your business. Why? Because payroll accounting allows you to get a comprehensive look at the total cost of your employees, of their ability to generate revenue for the business, and of the feasibility of hiring new workers to help you grow.
And, it’s not all about business, either! It’s about the happiness and well being of your employees, too. 54% of the American workforce are affected by payroll problems. And, 66% of Americans would experience financial difficulty if their paychecks were delayed by one week. This makes it even more crucial to ensure that you’re paying your employees fairly and on time every month.
The Best Payroll Accounting Software for Small Business Owners
It’s certainly a lot easier to be a small business owner in a lot of ways now than it was 20 or 30 years ago. Now, there are numerous payroll accounting software programs that you can use to automate your payroll process. You can use these programs to perform various tasks, such as calculating salaries and tax deductions, depositing checks directly into each employee's bank account, managing tax forms and pay stubs, and a whole lot more.
There are so many options, in fact, that it can be hard to choose the best one for your small business. Thankfully, FinancesOnline has made the decision process a lot easier for you. Here is their current ranking of the 5 best payroll accounting software for small business owners (with their respective score overall and user satisfaction rating).
4 Payroll Accounting Tips for Small Business Owners
Now that you (hopefully) understand the importance of payroll accounting for small businesses, it’s time to learn how to streamline and optimize your payroll process. Here are the top four tips we can offer based on our own experiences as small business owners and the experiences of other professionals.
1. Classify Workers
Let’s start off with the basics. In order to engage in optimized payroll accounting processes, you’ll need to ensure that you’re first classifying your workers correctly.
Are they full-time employees or are they independent contractors? Do you know the benefits to both you and them when classifying them as one versus the other? If not, it’s important to understand what each classification means for you as the business owner and what it’ll mean for your business taxes long-term.
For this process, the IRS classification guide can be used to help assess which category your employee falls into.
2. Carefully Review Data Entry
Not only do data processing errors cause delays in payments, which lead to unhappy and unproductive employees, but they can also cost you a lot in lost cash each year. 40% of small to medium-sized businesses incur IRS penalties related to incorrect payroll filings. The average penalty is $845. On top of that, small businesses can potentially lose thousands of dollars a year in fees, penalties, and issues with banks that arise due to data errors.
These small mistakes can considerably affect the finances of small companies. So, our second payroll accounting tip is to carefully review the data in detail before and after you enter it into your accounting system. In this sense, it’s totally worth paying for a payroll assistant or for premium support from your payroll accounting software platform to ensure that everything is entered correctly.
3. Know, Understand and Comply with Labor and Payroll Laws
Small business owners often make the mistake of ignoring payroll and labor laws. This applies at both a federal and a state level. If you’re a small business owner looking to scale, contact your local Small Business Administration office to ensure that you’re complying with the right rules when it comes to payroll taxes, state and local taxes, the Federal Security Contributions Act (Social Security and Medicare) taxes, and income taxes.
4. Hire a Payroll Administrator
If you’re still handling your own payroll accounting as a small business owner and have extra cash to invest in hiring a payroll administrator then we highly suggest doing so! Not only could it save you those 18 hours a month we mentioned above that it seems most small business owners spend on payroll accounting, but it could potentially save you thousands in data error losses and employee turnover a year.
Don’t have the means to bring someone on full-time? No worries! There are plenty of websites like Upwork and LinkedIn where you can find part-time workers or freelancers who are qualified in what they do and will be able to help you without you having to onboard an entirely new employee and factor in those added costs.
Better Your Bottom Line with Wealth Stack
We know what you’re probably thinking. “This sounds great, but it’s gotta be expensive for me as a business owner, right?” Investing in the right processes, particularly when it comes to payroll, is never expensive. The cost of employee turnover for a business owner can equal up to 2x the employee’s salary once everything is said and done. That’s expensive.
Instead of focusing on the upfront costs of managing your payroll processes, focus on the future long-term savings and gains you’ll be able to enjoy. If that piques your interest, then you’ll also want to start thinking about investing in your employees’ financial well-being by also offering retirement account options. And, before you start thinking about all that entails, we’re here to tell you that, when you opt for the right retirement solutions, the payroll administration is included in the service fees! At least, with Wealth Stack it is.
Wealth Stack retirement accounts are managed by an expert investor and former hedge fund manager. On top of that, we offer a free library of over 100 videos and articles on everything from investing to retirement planning and personal finance tips. Essentially, we’re your one-stop-shop for all financial-related questions. Welcome to your path to financial freedom.
Click here to learn more about the Wealth Stack Growth Pack and to schedule your free consultation with a professional today.