Ways of Payroll Management for Small Business
Typically, newly launched startups have a lot on their mind apart from payroll management. The smallest details on how to reach a break-even point in sales or to make a profit are also crucial. When thinking about all of this, payroll management can be a real hassle.
Some people think hiring the right talent for their business is more important than Payroll Management. But the point they’re missing is that they’re going to have to pay these people. Before you continue with internal hiring, it’s important to set a payroll process in place. It’s going to make payroll management much easier as you grow.
What is Payroll Management?
Payroll Management, more or less, refers to the process of managing the financial records of a company’s employees. Payroll Management consists of employees details like salaries, incentives, bonuses, deductions, and net pay. An employer must keep these records as directed by the law. If an employer fails to comply with the Income Tax laws related to employee records, the employer can be subject to legal consequences.
There are multiple methods a small business can run their payroll management. To make it easier to decide what suits you best.
Different Ways Of Payroll Management For Small Business:
Manual Payroll Management:
For a business of fewer than 10 people, payroll management isn’t that big an issue. You can manually calculate the salary slabs and taxes, assuming you know everything you need to deduct. Whether you’re deducting PF or leaves, getting the accurate amount to be deducted every time is critical. Subtracting the amount incorrectly could lead to some serious issues.
But everything you need to know about payroll management has been made available online, through blogs or youtube videos, all you need to do is look for the right one.
When calculating manually, using a calculator or an excel sheet, you have total control over everything that goes on. This also means that you are the only one held responsible for any errors that occur. One of the main disadvantages of handling payroll yourself is the liability that comes with it. Computing the salary payable using a calculator could lead to numerous errors if not done with attention to details. You could be knowing the entire process of how to do payroll software for small business and all the deductions to be made, but one incorrectly entered amount can change the end result completely.
With the advantage of being complete control, there are also drawbacks. Being a busy professional running a business, processing payroll by oneself can be extremely time-consuming. What could be done in one day with a payroll management software, would take a few days of the month, just to calculate and process every employee’s payroll.
Hiring an Accountant:
Hiring an accountant would only mean delegating all responsibilities from yourself onto them. They would understand your business and the process and would know how to do payroll accordingly. However, they would come at a cost with the same possibility of human error. The process would probably still be slow as they’d be running it themselves. As there is not a lot of difference except for delegation between manually running payroll or hiring an accountant, it’s better to choose an online payroll service for small business.
Payroll Management Software:
An end-to-end payroll processing software is beneficial for the biggest of MNCs and the smallest of businesses. The only issue here could be finding the best payroll software for small business. A payroll software would take care of the minute details and save you the awkwardness of going back to your high school math experience.
Just like handling payroll manually, you would still be in control of the process with online payroll services for small businesses. Payroll software come with the option of calculating all the leaves taken by an employee, adjust them with their leave balance, and deduct the rest based on their salary. You can quit worrying about staying updated with the latest government policies or income tax deductions, the software will automatically update everything. Based on the employee’s CTC, payroll software will also calculate the estimated TDS and income tax to be paid. Payroll software also comes preset with profession tax regulations as per every state’s policy.
Opting for payroll software would save an enormous amount of time every month. With only a few clicks, you can process payroll for the entire organization. With simple software, this process can be reduced down to an hour or so. It’s an effortless task to figure out how to handle payroll software for small business yourself. It may sound like such a service would come at a high cost. But you’d be surprised to find that they actually come at a very affordable cost. With only the learning curve being an issue, taking up only a couple of hours, payroll software is the best method of payroll management for small businesses.
Steps for Payroll Management of Small Businesses
1. Collect Your Employee’s Documents
Once you’ve hired an employee, you need to gather some important documents. Documents which act as a proof of identification, income, etc.
You’ll use the data to add the employee to your HR or payroll system if you have one. And, it’s a good idea to store this information in a paper or electronic personnel file as well.
2. Calculate Hours Worked
Calculating work hours is as simple as having the employee write down their start and end times each day and counting up the hours.
Most businesses start out with a simple timesheet. As they grow, they often move up to a time and attendance system or time clock to manage employee schedules, break time and hours worked.
3. Calculate CTC
Calculating gross pay is as simple as adding up the straight time hours and multiplying by the employee’s hourly rate. Then, adding up the overtime hours worked in the pay period and applying the employee’s overtime pay rate to those hours.
Doing payroll requires you know in advance what payroll deductions you’re going to make. Deductions include federal and state payroll taxes, benefits you might offer and things like unemployment insurance or Social Security.
Once you have subtracted deductions from the gross pay, you’ll have the net pay amount for each employee and be ready to pay them. The total is what each employee will receive on their check.
4. Document & Store Your Payroll Records
Payroll documents contain confidential information such as employee Social Security numbers. Alternatively, you can set up paper files, or upload documents to a document hosting service or your network.
Learning how to do payroll management can be a tough task. You have to make sure your business is registered with all the right agencies, fill out forms for each employee—all on a tight deadline.