5 Best Practices in Payroll Processing for Small Business Owners

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Your small business is up and running, you hired a couple employees to help you, and turned a profit for the first time. Congratulations! You’re off to a great start.

Like all small business owners, you’re probably still stuck with a few tasks that aren’t necessarily your forte but that have to get done, such as payroll processing.

Of all the accounting duties you might handle—tax prep, bookkeeping, accounts payable and receivable—payroll processing might be the most important to the livelihood of your business. If your employees don’t get paid on time, or they don’t get paid the right amount, you’ll have trouble keeping them around to keep your business running.

In other words, payroll is something that you have to get right.

best practices in payroll processing

But don’t worry, you’re not on your own. In this article, we’ll provide a road map to help you get your payroll done accurately and efficiently. Follow these best practices to ensure that your employees are happy because they’re getting paid on time, and you’re happy because payroll isn’t making you tear your hair out.

1. Use integrated payroll processing software

If you’re running a small business, you already have more than enough to do every day. Why make things harder on yourself by using inefficient payroll processing methods (such as paper ledgers and spreadsheets) or outdated software?

There are lots of payroll processing options out there that are designed to cooperate with your other accounting and finance software.

Learn how you can save time and money with accounting software:

How to Calculate the ROI of Accounting Software

By combining the strengths of your payroll software with your other business accounting software, you can do things such as:

  • Pull data from your time-tracking software so employee hours never have to be entered twice.
  • Automatically export tax information when it’s time to do your annual taxes.
  • Export payroll expenses to your business accounting software every month.

 YOUR MOVE:  Check out our “Top 20 Most Popular Payroll Software” list. Many of the most popular options have solid integrations with other popular business software. If you’re already happy with your accounting and time-tracking software, for example, ask those vendors which payroll solutions they work best with.

2. Always, always get it done on time

Want to see your employees revolt? Put off processing payroll for a few days because you have more pressing concerns to get to.

No matter how big or small your company is, your employees expect and deserve to be paid on time, every time. After all, they have bills to pay and families to feed, and they need to know when they’ll have those funds in their bank accounts.

The nice thing about using payroll processing software is that once you have an employee in the system and you’ve integrated with your time-tracking system, you can pretty much sit back and let it do the work.

To be fair, if you only have a handful of employees, automation might be overkill. But you can still set up reminders to make sure you get it done on time.

 YOUR MOVE:  Most payroll software features automation and notifications to ensure that payroll processing doesn’t just slip your mind. Once it’s up and running, all you’ll have to do is (digitally) sign the checks.

3. Know when to ask for help

Payroll processing isn’t like teaching yourself to play guitar. You can’t just “fake it ’til you make it” or learn on-the-go, unless you’re trying to create a lot more work for yourself down the line, or—even worse—trying to run afoul of the Sarbanes-Oxley Act.

You may be really good at brewing coffee or beer, or planning weddings, or designing web sites, but not so good at crunching numbers, and that’s OK. You wouldn’t try to fix one of your fleet vehicles or write software code if you didn’t know how, nor should you try to run payroll if you have no idea what you’re doing.

Know your limitations, and enlist help when you need it. It might cost a little more up front, but it will save you lots of time in the long run.

 YOUR MOVE:  Do some research. Here’s a list of payroll resources from Amazon. Some larger vendors also offer online payroll processing training—for example, QuickBooks, Paychex, and Xero.

The easiest solution, if you can afford it, is to hire a service to do your payroll for you. Here is a guide to the best payroll services for 2018.

4. Set up direct deposit

Many people have fond memories of receiving their first paycheck at a part-time job, followed by the not-so-fond memories of realizing just how little 20 hours, at $5.65 per hour, adds up to after taxes.

That meager paycheck becomes even more meager after spending time and money depositing at the bank.

Direct deposit (transferring wages directly into your employees’ bank accounts) is better for everyone except for check printing companies. Your employees get their money faster and don’t have to stand in line at the bank, you don’t have to print and distribute paper checks, and trees don’t have to be cut down to be turned into checks.

 YOUR MOVE:  Set up direct deposit right away and make it mandatory for all of your employees. That may sound harsh, but it really does make life easier for everyone.

Plus, the Electronic Fund Transfer Act states that you as a business owner can make direct deposit mandatory, as long as you let your employees choose the bank where their money will be deposited and you provide a digital pay stub. Luckily, your payroll software can make this easy as well.

5. Protect your data

Security is important for all of your data, but especially for something as sensitive as your employees’ personal banking information. The flip side to using direct deposit is that you have access to all of your employees’ personal banking information, and you can never take that responsibility lightly.

Never leave a paper trail. This is another advantage to direct deposit, but you can’t always prevent your employees from doing things like printing out pay stubs. Provide paper shredders on-site, and encourage your employees to use them for any paperwork with sensitive information.

As an employer, you are also responsible for keeping your network secure. If you leave the virtual back door open and hackers get into your employees’ information, you’re the one to blame.

Another advantage to outsourcing your payroll or using payroll software is that you can expect that third party to worry about data security, or fix it if there is a breach.

 YOUR MOVE:  If you are doing payroll in-house (and even if you’re not), you need to be especially vigilant about cybersecurity. Here are some expert tips on how to tighten up data protection at your small business.

What are your biggest payroll problems?

What payroll processing problems give you the biggest headaches? Anything we didn’t cover on this list? Please share them in the comments, and we’ll try to help each other out.

Also, to continue honing your small business accounting skills, follow our accounting and finance blog.

Looking for Payroll software? Check out Capterra's list of the best Payroll software solutions.

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About the Author


Andrew Conrad

Andrew is a content writer for Capterra, specializing in church management and project management software. When he’s not striving for the perfect balance of information and entertainment, Andrew enjoys the great outdoors and the wide world of sports. Follow him on Twitter @CapterraAC.


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