In the first few months after you’ve started your own business, administrative tasks such as payroll might not be the first thing on your mind. In fact, when you have products to launch and competitors to surpass, learning how to cope with payroll sounds like a daunting task for a new small business owner.
However, this isn’t a process you should neglect; first, because employees are the backbone of your company and if you do not pay them accordingly, they have no incentive to stay. And second, because failing to run accurate payroll incurs serious fines and penalties that can put you out of business. For example, in the UK, if your Full Payment Submission was late, you pay a monthly penalty that starts from £100 (for 1-9 employees) and can get as high as £400 (for 250+ employees), plus an additional penalty of 5% if you’re over three months late.
Estimating what you own to your employees and learning how to organise payroll can save you a lot of trouble and help your small start-up grown into a large successful organisation.
Payroll tasks: The rundown
Until you have any contact to the financial side of running a business, payroll might be synonymous to handing out checks to the employees. But, while this responsibility is part of the process, it definitely isn’t the only one. Payroll is actually a set of complex administrative tasks that includes the following:
- Collecting data to determine how much employees should be paid
- Establishing compensation, bonuses and severance packages
- Calculating employee overtime
- Reporting all payroll information to the local system
- Managing worker leaves (including public holidays, personal leaves, maternity leaves and medical leaves)
- Calculating taxes based on the number of employees and issuing tax forms
- Making sure the company complies with local regulations
- Paying employees their salaries on time
- Keeping payroll records
Who should be responsible for payroll in a small business?
Without a doubt, payroll is a business process that requires a lot of attention and shouldn’t be left to chance. Establishing who is in charge of it can save you a lot of trouble down the line, so here are the four options you have, with the pros and cons of each one:
- Doing your own payroll. If you are one of the 4 million private companies in the UK with no employees, then you can do your own payroll. Since no one other than yourself works for the company, then payroll is not a complicated task to deal with – although you shouldn’t say no to professional advice from time to time. However, if you do hire employees, this option is not recommended. On the one hand, it’s difficult to get payroll done right without sound financial and legal knowledge so from the desire to save money, you could actually be penalised for making payroll mistakes. On the other hand, as a small business owner, you have more important things to do with your time. Managers should focus on networking, developing growth plans and bringing innovative solutions to life, not waste time on nitty-gritty paperwork.
- Outsource payroll tasks. This option is better than doing your own payroll, because the job is being handled by a trained professional. Outsourcing payroll tasks is a good idea when you have only a few employees and you don’t need someone full time. However, keep in mind that some companies and freelancers have high fees and choosing the right payroll clerk can be a difficult process. You need to make sure that the person(s) you hire is organised, familiar with payroll forms, reliable and knows how to use computerised payroll systems.
- Online payroll services. In a business environment that focuses more and more on digital elements, payroll services for small business are becoming a must for every entrepreneur who wants to streamline processes while saving money. Packed with state-of-the-art features that take the stress out of payroll, these online services also eliminate the risk of human mistake and maximise efficiency. Modern payroll services have easy to use interfaces that even a beginner can understand, form generation features, secure and organised data management and account synchronisation across different platforms. Striking the perfect balance between price and efficiency, online payroll services are the perfect alternative to hiring a payroll clerk and, with so many great options out there, it’s impossible not to find out that matches the needs and goals of your business. For example, you can opt for online-only payroll services, which you can access from browsers on any device, or for downloadable software, which has to installed on separate computers. Needless to say, the popularity of smartphones has also made mobile payroll services possible.
- In-house payroll. In-house payroll processing isn’t that common with small business, mainly because it’s the most expensive option. Setting up your own department to deal with payroll processing in-house costs quite a lot of time and money, but you can resort to this option if your start-up doesn’t face budget constraints.
How to choose payroll services
No matter how you will tackle payroll processing, it’s important to focus on these key elements:
- Security. Whoever deals with the payroll has to be a trustworthy individual and, if you’re opting for online payroll tools, make sure your data is backed up and secure.
- Accuracy. Mistakes are unacceptable and can cost you money, so don’t choose the second-best option.
- Promptness. Your employees should always receive their salaries on time and payment information must be reported promptly to avoid fines.
- Flexibility. The payroll option you choose has to work for you. When hiring someone to deal with payroll, make sure they understand your needs and are always there for you. And, when choosing online payroll services, go with a scalable tool that can adapt to your needs as you grow into a larger company.