Most small businesses understand the value of smart payroll practices. But many fail to anticipate the negative impact of this business-critical activity if poorly executed. While a solid payroll system can keep employees happy and the government satisfied, poor payroll practices can create tax-related nightmares, send labor costs skyrocketing, and prompt an employee exodus.
Fortunately, small businesses need not invest millions in high-end software programs or high-priced consultants to make the most of payroll. Here, experts and entrepreneurs alike chime in on what it takes to put in place world-class payroll practices on a small business budget.
1. The benefits of a do-it-yourself strategy
When it comes to payroll, using pen and paper or a simple Excel spreadsheet is still commonplace. That’s because a manual payroll system is easy to get off the ground and one of the most cost-efficient approaches to issuing checks and tracking payments. What’s more, a DIY-payroll system doesn’t have to bend to the constraints of an off-the-shelf software program. Nor must small business owners spend thousands of dollars customizing a manual payroll system.
However, there is often an opportunity cost to entrepreneurs who take on the burden of handling their own payroll. After all, hours spent calculating overhead, figuring tax withholding, and issuing payments translate into time not spent on things like refining your business’s current production capability, brainstorming new product ideas, or prospecting for new customers. These intangible losses won’t directly show up on a profit and loss statement, but after a few years of stagnant growth, an entrepreneur might discover that their time is too valuable to be devoted to back-office clerical work like payroll.
2. Deploy a software program that’s right for your business
These days, there’s no shortage of payroll software packages promising to simplify accounting, calculate and remit payroll taxes, print paychecks, ensure government compliance and provide paystubs to employees.
Just ask Barbara Kittrell, owner of Kittrell/Riffkind Art Glass, a Dallas-based art glass studio specializing in custom-stained glass. “When I used to do my taxes, it would take hours because I had no way of tracking it manually,” recalls Kittrell. “It used to take way longer and it all had to be done by hand and then verified. I tended to be a little dyslexic with numbers so I had to do everything over and over just to make sure it was right.”
That is until Kittrell converted to a small business accounting and payroll software solution. Today, Kittrell says payroll activities that used to take an hour-and-a-half now require “just minutes” to complete. Better yet, the system allows her to easily add and subtract new workers as they come and go, making it easy to adjust to seasonal workflows.
CrowdSPRING’s introduction to payroll software wasn’t quite as smooth as that of Kittrell’s but the adventure has since paid off. The Chicago-based online marketplace for buyers and sellers of creative services began with one payroll package that Mike Samson, the company’s co-founder, describes as nothing short of “awful.” Plagued by an unfriendly user interface and poor customer service, he eventually switched to a different software provider and now Samson says crowdSPRING’s 14 employees couldn’t be happier.
“They have access to their accounts, they can print a copy of a check stub, or sign right in and have access to everything,” says Samson. “It saves us money and our employees love it because [with its direct deposit capabilities], nobody wants to have to deposit a paycheck nowadays.”
3. Consider outsourcing
Sometimes running the most seamless payroll processes means not running them at all. At least, not in-house. Many small businesses turn to third-party providers to oversee their payroll practices.
“Because of its complexities and the changing rules and regulations, I’m a fan of outsourcing payroll,” says Tom Gegax, founder of Gegax Advisors and author of The Big Book of Small Business: You Don't Have To Run Your Business By The Seat Of Your Pants. “A small business doesn’t want to mess around with payroll. Plus, it’s so inexpensive to outsource payroll—for a tiny company, it’s worth it.”
To learn more, check out our earlier article on the decision to outsource payroll.
It’s easy to do the math. Simply calculate the number of hours your employees spend on a weekly basis tending to payroll activities. Then compare these costs to the price of the packages being offered by third-party providers. Don’t forget to factor in additional in-house costs such as printing expenses, distribution fees, creating tax documents, and more. Chances are, you’ll save money by handing over payroll activities to an outsourcing company.
But not all small business owners are ready and willing to sing the praises of outsourcing. As far as Samson is concerned, payroll software offers “phenomenal access to information” while outsourcing arrangements can make business owners feel as if they’ve lost control over their finances and payroll processes, so choose accordingly.
Be true to your company
Doing it yourself, using a payroll software package, or paying for a third-party provider—these are a small business owner’s major choices when it comes to satisfying your employees and providing the best possible payroll practices. But remember: Just as no two companies are alike, no two small businesses are likely to have exactly the same set of processes. So decide what’s right for your specific company and industry.