Payroll management is critical for small and midsize employers. Federal, state, and local agencies require that you meet a variety of tax, reporting, and wage related obligations and your employees expect to be paid accurately and on time.
Strong payroll management encourages staff trust, helps to control possible compliance risk, and provides insight into labor costs. Decrease in morale, increase in turnover, and even costly penalties are all possibilities if payroll management begins to slip. Take a look at how to strengthen your payroll management.
Create A Written Policy
Every employer should create a formal, written policy outlining its payroll philosophy, rules, and procedures. Your policy should do more than state when employees get paid. It should address timekeeping, overtime approval, paid leave, expense reimbursements, payroll corrections, final pay procedures, and wage or status changes. If you have remote or multistate employees, your policy should also clarify how location changes are reported and reviewed.
Ultimately, your payroll policy needs to be a comprehensive, living document that you regularly reevaluate and revise as needed. (It’s a good idea to consult a qualified attorney when doing so).
Prioritize Compliance
Payroll management means payroll compliance. At the federal level, among the most important laws is the Fair Labor Standards Act (FLSA). Under it, you must generally categorize employees as either exempt or nonexempt. Covered nonexempt employees generally must receive overtime pay at the required rate for hours worked over 40 in a workweek. However, some salaried employees may still be nonexempt. So your organization must monitor job duties, compensation, and applicable exemptions carefully.
Also, be diligent when engaging independent contractors. Help ensure they’re not managed the same way as employees. Worker classification is an especially important area to monitor because the rules are complex and continue to evolve at the federal and state levels, making this a frequent source of disputes and audits. Should any questions arise regarding how to classify a worker, contact your employment attorney.
Of course, there are other laws to consider. Examples include the Federal Insurance Contributions Act, Federal Unemployment Tax Act, and Equal Pay Act. Your organization needs reliable, compliant procedures for:
- Withholding, depositing, and reporting payroll taxes
- Issuing W-2 forms
- Maintaining required records
- Addressing state and local requirements that may apply
Agencies such as the IRS and U.S. Department of Labor may conduct payroll compliance investigations. Be sure your staff and payroll services provider, if you have one, keep up with the latest regulations and guidance.
Simplify & Streamline
To the extent possible, keep your payroll processes simple and streamlined. You may want to use a centralized portal or a cloud-based “software as a service” application to help facilitate an efficient, affordable approach. Ideally, your payroll system should integrate with timekeeping, human resources, and accounting systems to reduce manual entry, improve consistency, and create a reliable audit trail. However, automation shouldn’t replace oversight. Maintain clear approval workflows, access controls, and review procedures before each payroll is finalized.
Under the right circumstances, outsourcing can increase efficiency, ease compliance, and save time and money. But perform a cost-benefit analysis before investing in a third-party payroll services provider. Remember, even when outsourcing, your organization remains responsible for providing accurate data, reviewing reports, and helping to ensure tax deposits and filings are properly handled.
Invest In Training
If you’re keeping payroll in-house, train every staff member involved appropriately. This should include occasional refresher sessions on procedural or technological changes. Even if you outsource payroll, some employees may need to be taught how to work effectively with the provider.
Don’t limit training to payroll personnel. Supervisors may need guidance on time approvals, overtime rules, and how to avoid informal practices that create compliance problems. Employees should know how to submit hours, review pay statements, update withholding information, and report discrepancies.
Stay On Top Of It
Payroll management is an ongoing responsibility that demands vigilance and continuous improvement. Regulations, technologies, and staffing and operational needs can all change over time. Contact us for help evaluating your current payroll practices, identifying potential tax and reporting issues, and making needed improvements.
