Payroll processing is a paradox; it can be very simple yet very tricky. It is simple in the sense that as long as you pay your employees and your taxes accordingly.
However, complications come in when your payroll system experiences glitches – complications that can eventually mess up your bookkeeping. For SMEs, efficiency in payroll handling means maximizing profit that you can use to expand your business.
In the Payroll Operations Survey1 done by Deloitte Consulting LLP, it is indicated that the top 3 challenges in payroll processing are: 1) inaccurate/incomplete/not timely data (36%), 2) time collection and corrections (18%), and 3) inconsistent processes (16%). Consider these factors and think: how will all these affect my business in the long run? The answer is profit loss, as you pay penalties and experience financial setback with every inconsistency.
How do we make our payroll processing more accurate and efficient? Here are 5 effective ways to do so.
Understanding State and Federal Tax Guidelines
The main consequence of not understanding these guidelines is a rather hefty penalty, which could accumulate for each miscalculated payroll tax. Verification is the key: Ensure that your payroll system is accurate with your withholding tax for every pay cycle. Making and checking reports for negative taxes, federal and state liabilities, and tax due dates can also guarantee you smoother bookkeeping.
It is not enough that you acquire a state-of-the-art online payroll system; you have to integrate it with your accounting system to maximize your investment on the online system while producing accurate payroll results. Once merged, review reports for preliminary payroll register, sorted lists of paid wages, and payroll expense trend lines, as they indicate data entry errors and fraud.
Minimizing Pay Cycles
Minimizing pay cycles equates to minimizing errors in payroll processing. Chances are, when you have different pay schedules for management (monthly) and part-time employees (bi-weekly), duplication of multiple processes can happen, which will most likely have a negative effect on employee satisfaction. To avoid this, choose only one pay schedule for everybody; this way, the payroll department can move on to other tasks after the payroll processing.
Issuing of Management Reports
Once you lock down the payroll period, you can prepare management reports to prevent fraud due to unauthorized changes and to ensure everything has been paid for the current cycle. Also, using reports such as trend lines of overtime per employee and trend lines of compensation expenses per department ensures foresight in decision-making – and ultimately, a smoother business cash flow.
Outsourcing your Payroll
For SMEs, it could be a bit costly to get a state-of-the-art payroll system or have an in-house payroll department. Fortunately, a cost-effective alternative exists in the form of payroll outsourcing. It may be a smart move for SMEs, since most third-party providers give a tax guarantee that can save you from paying penalties when errors are incurred. More importantly, you can utilize the expertise of these firms in terms of bookkeeping, accounting, and payroll knowledge to ensure correct payroll entries and budget.
Payroll issues can be quite a nightmare, and may be a major source of stress for everyone, especially yourself. Don’t worry, though. Simply follow these tips, and you’ll keep three parties happy: your employees, the government, and yourself, of course, as you maximize your profit while being a good employer.
Learn more about how we can apply solid practices in improving your payroll process - and bookkeeping for SMEs in general – by clicking here http://www.dvphilippines.com/services .