November 9, 2021 | 3-minute read (604 words)
Entrepreneurs should be familiar with their own company's payroll operations, regardless of whether they manage payroll themselves, have an in-house payroll team or outsource payroll processing to a third party.
The reason is because the stakes are so high. If payroll processing is done incorrectly, your company could face fines and penalties. Almost 50% of small businesses are fined an average of $850 each year for payroll tax issues, per the National Federation of Independent Business.
Here are five tips for business owners to stay on top of payroll.
The way employees are classified in your payroll processing system determines their eligibility for overtime compensation. Under the Fair Labor Standards Act, employers must pay overtime at the rate of time and a half for all hours that exceed 40 hours in a work week.
However, employees categorized in specific occupations who earn at least $684 per week are exempt from the FLSA’s overtime rule. Individuals who are nonexempt from the FLSA’s overtime provision are entitled to overtime pay for all hours worked beyond 40 in a work week (as well as any state overtime provisions).
With a few exceptions, exempt employees must be paid on a salary basis and are classified as executive, professional, administrative or outside sales employees. Nonexempt employees may be paid on a salary, hourly or other basis. If you are uncertain whether to classify employees as exempt or nonexempt, consult with an attorney or accountant who can help make the correct determination.
Confirm employees are correctly classified
Even if you're only starting out and don't understand the complexities of federal tax collection and payments as an entrepreneur, it is still your responsibility to comply. The government does not care if you "just didn't know" about payroll and income tax laws.
Consult an accountant or payroll expert to determine which taxes you must deduct from employees' pay. Typically, this will include federal, state, and local income taxes plus FICA and potentially others.
You also must pay your tax obligations to the government on time. This often comes as a shock to new business owners, but unlike personal income taxes, these aren't all due April 15. Self-employed individuals must make quarterly estimated tax payments instead of with each paycheck like a W-2 employee.
Ensure you are collecting, paying taxes
Pay attention to changing laws that affect payroll processing. For example, the minimum weekly pay required to identify employees as "exempt" increased from $455 to $684 in 2020.
Other changes that regularly transpire include tax rate modifications and new deadlines. If you don't have the time to keep up with the constantly evolving payroll requirements, hire a firm that can.
Keep up with regulatory changes
Spending time addressing frequent employee inquiries can really slow down payroll processing. Wages and salaries are essential to employees and must be prioritized, but you may lack time to deal with them in a timely manner. That means it’s imperative for employees to have a self-service portal to access their payroll data.
Through a protected interface, employees should be able to view their pay stubs, upcoming payments, time off requests, withholdings and other information. A self-service portal lets employees access their data as needed, which allows your staff to focus on other tasks.
Give employees a self-service option
Simplify processes and procedures by moving paperwork online. This can reduce your environmental footprint, save space and boost organization. Minimizing the need for printing and processing paperwork and producing, mailing and depositing checks will also save you money. In the long run, upgrading your payment processes to electronic checks and payroll services will increase efficiency.