Tips for Managing Payroll - The Great American Small Business Challenge | The Great American Small Business Challenge

Summary: Managing payroll requires careful consideration of your employees, and their status with your company.

Every business needs to learn how to manage its payroll properly if it hopes to scale effectively. There are tons of small businesses that run a husband and wife operation, where one keeps the books and the other runs operations. Others acquire outside help. Keeping an electronic time clock is just one piece of the machine. If you’re looking to do payroll for your own business, here are some tips to help you get started.

Independent or Permanent Employees

One of the easiest ways to avoid a legal snafu is to properly define the types of employees that work for you. An independent contractor is not all that different legally from a full-time employee. Employees on your recurring payroll are generally considered full-time, but if you have recurring contract work this becomes difficult to separate with a rule that is hard and fast. Defining the kinds of employees you have will affect everything from your income tax and Medicare spending, to how much you pay in unemployment tax.

Create a Pay Period

Establish a pay period that is set in stone, and automate the process. You can use time clock software to track employee hours in a format that is easy to transfer to a payroll company, if you use one. Decide whether you want to pay employees weekly or bi-weekly, which may be dependent on state law in some situations. You also need to withhold the income tax for that period of time, even if your employees don’t work their scheduled shifts.

Track Hours

A time clock is a handy device to have when you’re tracking employee hours worked. Employees can use a finger scanner, a time card, or sometimes a fob to clock in and out for scheduled breaks and at the start and end of a shift. Time clocks are much more reliable than asking employees to track their own hours. There is too much room for time clock fraud, and the reports are easier to run for payroll when data is automatically tracked and compiled.

Keep Records

Carefully document the agreements that you reach when you hire new employees. Set up payroll and note how many vacation days an employee is eligible for, as well as the amount of sick days they get from the company. If you allow flex time, establish this up front in the employee agreement. You should also discuss when employees are eligible for benefits, including health insurance and 401k.