Payroll is in the spotlight more than ever this year with minimum wage increases. Twenty-six states have increased their state minimum wage this year. Of note, the increase in Virginia (from $7.25 to $9.50 in May) is the largest single increase. In today’s post, I interview two payroll companies about avoiding mistakes in small business payroll.
As this is summer, my mind goes to the many teenagers who are working this summer, shoring up a declining labor force. When it comes to youth minimum wage, federal law authorizes a youth minimum wage: employers are allowed to pay employees under 20 years of age a lower wage for the first 90 calendar days of their employment. Any wage rate above $4.25 an hour may be paid to eligible workers during this 90-day period. However, check your state wage laws as they may differ from federal laws and know what your market pays. In Virginia, most teenage workers get the state minimum wage or higher this summer!
Payroll is the one thing employers need to get right EVERY time. Employees don’t pay much attention to the handbook, but they will make it known if their paycheck is incorrect. Chris Mabe of Payday Payroll and Missy Allen of Paylocity share their expertise of common payroll questions small businesses have.
Anne-Lise: What are the most common payroll mistakes made by small businesses?
Missy Allen of Paylocity: Post and pre-tax benefit calculations are the most common payroll mistakes. At Paylocity, we even see these errors made by small payroll companies. We also see mistakes made in the FFCRA leave calculations in addition to the Employee Retention credits available under the CARES Act.
Chris Mabe Payday Payroll: There are two basic mistakes many small businesses make.
The first mistake is entrusting the payroll to a single person. This can lead to serious problems from embezzlement to covering up mistakes to preserve their job. There are too many moving parts and responsibilities for a single person to handle payroll alone. It’s just not good for internal controls.
The second mistake is entrusting the payroll to someone who isn’t a payroll professional. This creates the potential for non-compliance with any number of government agencies from the Department of Labor to the IRS. Too often we see payroll put into the hands of someone that knows how to enter numbers into QuickBooks without understanding what happens after they enter the data.
Even when the payroll person is knowledgeable, court-mandated withholding (child support, garnishments) can quickly become unmanageable. When regulations are not followed or the withholdings are not done properly, it creates a risk to the business.
Employee benefits and retirement plans bring additional complexities. For example, are the benefits with pre-tax dollars or post-tax dollars? Setting this up incorrectly can cause a myriad of issues from paychecks being calculated incorrectly to insurance policies not paying out during times of need. Even accounting for accrued PTO in hourly increments for non-standard work hours can be challenging.
Anne-Lise: Do you have any tips to make small business payroll painless?
Missy Allen of Paylocity: Join the American Payroll Association for best practices and to stay informed of industry trends, and upcoming legislative changes. Partner with someone in the industry who will share best practices and alert you of upcoming changes. Make certain your system is secure so you don’t have to worry about data breaches and cyber-attacks.
Chris Mabe: Employers with non-exempt and hourly employees need to keep a very accurate count of hours worked. Non-exempt employees need to be paid overtime. When Time & Attendance integrates with payroll, it is both a time saver and ensures accurate payment of wages.
Anne-Lise: In my experience employers spend too much time dealing with timesheets. Any recommendations?
Missy Allen: Get a good payroll software that will do the complex calculations for you. Excel is probably not sufficient in many cases. We see clients with multiple Excel spreadsheets when a good payroll system can put it all in one place. Our system can export data to Excel when needed. Most payroll-specific platforms are modern. They provide easy access to the information and reports you are used to – no need to create your own payroll spreadsheets and recreate a potentially faulty wheel.
Anne-Lise: When should a small business transition from in-house payroll to third a party processor?
Missy Allen: A business should consider moving to an outside payroll vendor when they reach 50 employees. Most payroll companies provide a full-service HR information system. It’s an opportunity to introduce some automation between the benefits system and payroll system for example.
When looking for a payroll vendor, check that the payroll software will integrate with your General Ledger and Accounting system. A payroll platform allows for multi-user access so the information can be shared among several employees, be it Accounting and HR for easier resolution of issues.
Chris Mabe: There is no right answer. Some businesses never process their payroll internally. They get started with payroll vendors from day one. Even owners in an S-Corporation need to be employees of their corporation and need to pay payroll taxes. That’s because most business owners don’t have time to worry about the complexities of payroll and tax regulations. They need to focus on their business and make money.
Payroll truly requires specialized knowledge and ongoing education to be done right every time. By using a third-party payroll processor, employers also get the power of a complete payroll department at a fraction of the cost. Having a payroll company on your side brings peace of mind.
It is worth noting that employers remain accountable for their business filings. We always encourage our clients to “check behind us.”
Anne-Lise: Any recommendation for employers looking to outsource payroll?
Missy Allen: Do your research and due diligence. Check reviews of what others are saying on Google, LinkedIn, G2Crowd, or Glassdoor. Narrow the list down to two or three payroll vendors then ask for a demo. I’ve seen companies demo six different payroll systems but that’s too many. It’s overwhelming and becomes confusing. Narrowing down your list before asking for a demo.
Watch the demo carefully and ask to see all tabs at the top of the screen, so you understand all the functionalities (and limitations) of the system. Finally, always ask the vendor if they price-match the competition.
After the demo, ask for references from clients that have used the system. Ask for security documentation and business backup and disaster plans. Especially with the increasing number of cyber-attacks, businesses need to make sure their payroll vendor is secured and protects employees’ information. I would also recommend that they involve HR as well as the C-Suite or owners very early on so all the decision-makers are on board from the start of the selection process.
Chris Mabe: For the most part, all payroll vendors perform the mechanical aspects of payroll the same. Because payroll happens frequently, you’re going to interact with your payroll company quite a bit. Look for a payroll company that treats you the way you treat your customers.
Payday Payroll prides itself on the fact that clients never leave a voicemail during business hours. They dial our number and speak with a real, live person in our Virginia Beach office within 3 rings. The average tenure of our support staff is about 8 years. So we get to know you and your business very well. We take our job seriously because we know employees’ paychecks are important, and so is your time.
Cost is another consideration. Make sure you understand not only about the cost of processing payroll, but also if there are additional charges for fixing problems, payroll reruns, IRS filing, and transacting funds to third-party providers. Those less obvious costs add up quickly. What might look like a low-cost payroll provider might turn into an expensive service.
Both Paylocity and Payday Payroll offer payroll services across the country and work with multi-state employers.