Employees are the heart of any company, so you need to make sure they receive their paychecks on time, every time. Whether you’re paying them on a monthly, weekly, bi-weekly, or daily basis, companies must have a standardized process to ensure employees aren’t left without their much-needed pay due to a procedural lapse. When you’re setting up payroll for your business, consider these best practices to avoid errors and other sticky situations.
Develop a Formal Process and Guide
The first and possibly most critical step to setting up your payroll system is to develop a formal process and to document that process in a guide. Otherwise, the process may only exist in the payroll administrator’s mind and that spells disaster if that person leaves the company or is unable to process payroll for some reason. All steps for ensuring employees are paid on time based on their schedule should be written down in the most concise language possible so that anyone can follow the steps if they need to.
A payroll process guide is also handy for new human resource employees who need to learn the system quickly. A guide will ensure that everyone is trained in the same way and has the same knowledge so that if someone is absent or leaves the company, another employee can seamlessly take over their role. There can't be any gap in the payroll process or employees don't get paid, and nothing makes an employee angrier than not getting their pay. Therefore, conducting a comprehensive hr system comparison is crucial to guarantee a seamless and efficient payroll management process.
Establish and Document Important Deadlines
Payroll is regulated by the Department of Labor in the US, and it has very strict deadlines for when companies need to submit payroll-related documents such as tax forms, payroll stubs, retirement statements, and more. If you miss these deadlines, you could face severe penalties that will eat into the company’s revenue.
Make sure you know the payroll-related deadlines for both federal and state labor departments and document them. Display them prominently for everyone on the HR team to make sure all employees are aware of these critical dates and can adjust their schedules accordingly. This will help your team avoid a last-minute scramble to get the required forms in on time and prevent you from missing deadlines altogether.
Set Up Reminders and Notifications
Payroll software is almost mandatory for companies of all sizes these days, and if you’re using a software product, you can usually set up reminders and notifications to help you keep track of the important deadlines that we discussed above. You can also set up notifications for specific routine tasks that you need to perform every payroll period. This will keep everything running smoothly and on track to ensure employees are paid on time.
It is also helpful to send reminders to employees to check their hours and submit them for payroll at a set time each pay period. Even though their pay depends on getting this information into human resources on time, they often get so focused on their work that they forget to do this. A reminder will keep them on track better and make your job easier as well.
Automate as Many Processes as Possible
Payroll software also allows HR teams to automate certain processes that used to take a lot of time to perform manually. These processes include calculating the number of hours worked, taxes, other deductions, and overtime amounts. Having the software calculate these numbers reduces errors and frees up more time for HR employees to do other tasks.
Also consider using a clock-in, clock-out application, whether or not it’s tied directly to your payroll software. This ensures that employees are accurately reporting their hours worked and places the responsibility on them to get their hours turned in on time. It’s easy for employees to “fudge” their hours a bit when recording them manually, but with a clock-in, clock-out app, they will be paid for exactly the hours they work.
Classify Employees Properly
Incorrect employee classification will cause all sorts of problems down the line, particularly with the Internal Revenue Service (IRS). Most companies don’t want to have any issues with the IRS, so classifying employees properly is absolutely vital. All employees on your HR team should understand the differences between full-time employees, part-time employees, independent contractors, exempt employees, and nonexempt employees because each type of employee is eligible for various benefits and may have different tax setups.
Payroll software can help you differentiate these employees so that they are automatically treated appropriately for each pay period and during tax time. This can help you segment your team so that one group handles the independent contractors and one group handles the full-time employees, for example. It will keep everything separate so that nothing gets missed that results in incorrect pay, penalties, and fines.
Keep Meticulous Records
Not only does the IRS require companies to keep payroll records for a specific amount of time, but you also want to have detailed records in case an employee disputes their pay for any reason. Whenever you’re dealing with money, it’s extremely important for there to be a paper trail for how that money moved through the system.
Of course, this doesn’t have to be actually on paper because digital records are usually acceptable for most purposes these days, but the key point is that you should be able to provide proof of all payroll-related records for as long as necessary. This is as much to protect yourself as it is the company, especially if there becomes a legal issue regarding pay at some point down the road.
Use Direct Deposit
Paper paychecks are really a thing of the past. Of course, many small businesses still use them, but direct deposit makes the whole payroll process easier for both HR teams and employees. It eliminates lost checks and stop payments, and ensures an employee’s paycheck is in their bank account as early as possible on payday. Plus, all records will be kept digitally, eliminating the need for physical filing cabinets and potential loss.
If there’s one thing you can’t mess around with as an HR team, it’s your employees’ paychecks. For this reason, establishing these payroll best practices as early as possible will remove as many headaches for you and your team as possible.