Payroll processing is a complex and time-consuming task for many businesses. According to a survey conducted by Ceridian’s Future of Payroll Survey, “85% of companies have problems with their payroll technologies". Studies show that 63% of small business owners underestimate the time it takes to process payroll. Many found the task to be frustrating, complicated, and confusing.
In addition, SurePayroll noted that 32% of small business owners have made a payroll mistake at least once. With an estimated 300,000+ payroll and bookkeeping services in the US, choosing the right partner is essential for accuracy and efficiency, ensuring compliance with evolving regulations. Therefore, small businesses must understand the payroll processing timeline and take steps to streamline the process.
Understanding Payroll Processing
Payroll processing involves calculating employees' wages, withholding taxes and deductions, and issuing payments regularly.
Here is a typical payroll processing timeline:
Collecting timesheets
Employees submit their timesheets at the end of the pay period indicating their work hours. This can take from hours to days, depending on the company's size and employees' efficiency.
Running payroll
This involves calculating gross pay, withholding taxes and deductions, and determining net pay. This can take from minutes to days, depending on whether payroll is done manually or using software.
Waiting for direct deposit
If paying employees via direct deposit, it typically takes 1 to 4 days for the funds to be deposited into employees' bank accounts after initiating the direct deposit.
Payday
Employees are paid either via direct deposit, paper checks, or payroll cards. This typically occurs 1 to 4 days after running payroll, depending on direct deposit processing times.
So, in total, from collecting timesheets to issuing payments, payroll processing can take anywhere from 1 day for a small company using software and direct deposit to over a week for a larger company doing manual calculations and issuing paper checks.
Fortunately, there are some ways to save hours on payroll and make it more efficient and accurate. Here are some tips to help you streamline your payroll process and free up your time:
Use payroll software or service
A payroll software or service can automate many of the tedious and complex aspects of payroll, such as calculating taxes, deductions, benefits, and overtime. It can also generate your employees' pay stubs, direct deposits, and tax forms. A payroll processing software can also keep you updated on the latest tax laws and regulations and help you avoid costly penalties and fines.
Outsource your payroll to a professional
If you don't have the time or expertise to handle payroll yourself, you can outsource it to a professional payroll provider. A professional payroll provider can take care of all the payroll tasks for you, such as setting up your payroll system, processing your payroll, filing your taxes, and answering your questions. A professional payroll provider can also offer you additional services, such as human resources, benefits administration, and compliance support.
Simplify your payroll schedule
Having a simple and consistent payroll schedule can make your payroll easier and faster to run. For example, you can pay your employees biweekly or monthly instead of weekly or semimonthly. This way, you can reduce the number of times you have to run payroll and deal with payroll issues. You can also align your payroll schedule with your tax deadlines so that you can pay your taxes on time and avoid late fees.
Keep accurate and organized records
Keeping accurate and organized records of your payroll data can help you save time and avoid errors. For example, you can use a time tracking software or app to track your employees' hours, attendance, and overtime. You can also use a cloud-based system to store your payroll documents, such as pay stubs, tax forms, and receipts. This way, you can access your payroll data anytime and anywhere and easily share it with your accountant or auditor.
Train your employees on payroll matters
Educating your employees on payroll matters can help you reduce confusion and mistakes. For example, you can train your employees on how to use the time tracking software or app, how to read their pay stubs, how to report any changes in their personal or financial information, and how to file their taxes. You can also provide them with a payroll handbook or policy that outlines the rules and procedures of your payroll system.
By following these tips, you can save hours on payroll and make it more efficient and accurate. This way, you can focus more on growing your business and achieving your goals.
How can I improve my payroll process?
There are several ways you can improve your payroll process to increase efficiency, accuracy, and compliance:
Create a monthly payroll schedule
Determine your payroll frequency and stick to it. This provides consistency and allows employees to budget accordingly.
Study tax requirements
Stay up to date with changing tax laws and policies to ensure you meet all compliance obligations. Have an employee regularly research this.
Create clear payroll policies
Document all policies and procedures related to payroll and make them accessible to employees. This reduces confusion and errors.
Conduct periodic audits
Regularly audit your payroll process to identify issues and opportunities for improvement. Check for errors, outdated software, and training needs.
Invest in payroll software
Automated payroll software can reduce errors, streamline processes, and provide real-time access for employees. Consider cloud-based options for anytime access.
Implement direct deposits
Switching from paper checks to direct deposit can save time and money by automating payments.
Outsource payroll
Hiring an external payroll provider can reduce the administrative burden, especially for complex global payroll needs.
What are some common payroll errors to watch out for?
Some of the most common payroll errors to watch for include:
Misclassifying employees
Improperly classifying employees as exempt or non-exempt can lead to not paying proper overtime. Misclassifying independent contractors vs. employees can also result in fines.
Failing to remit quarterly taxes on time
Missing tax deadlines can result in penalties, interest charges, and increased scrutiny from tax authorities.
Incorrectly calculating overtime
Failing to accurately track and pay overtime for non-exempt employees when they work over 40 hours in a week can lead to legal issues.
Not accounting for all forms of compensation
Forgetting to report bonuses, stock options, gift cards, and other compensation on W-2s can result in tax penalties for both employees and your business.
Disorganized records
Manual, paper-based processes are prone to errors and make it difficult to catch mistakes.
Missing important deadlines
Failing to issue paychecks on time or file W-2s by the deadline can lead to fines and unhappy employees.
Incorrect W-2s
Even minor errors on W-2s can require reissuing them and cause headaches for employees.
To avoid these common payroll errors:
- Automate payroll processes with payroll software for efficient global payroll management
Establish clear payroll policies and procedures
Review existing processes to identify issues
Create a detailed payroll calendar
Stay up to date with changing tax laws and regulations
Regularly audit payroll for accuracy and efficiency in your payroll automation system.
Outsource to a payroll provider if needed
The key is to have systems and processes in place to catch mistakes early and continuously improve your payroll management. Automation and integration with HR systems can also help ensure data accuracy and consistency.