Sean Manning is CEO and Founder of Payroll Vault Franchising LLC, as well as a CPA and Thought Leader in the Financial Field.
No matter what industry you are a part of, there are some fundamentals to running a business that every owner needs to know.
Sometimes, the best answer is to outsource certain administrative duties to others, but even when you do, it’s important to at least know enough about the various aspects of business administration to comprehend your business needs.
Payroll is no exception. As the owner of a third-party payroll and HR services franchise, I have experience implementing this knowledge for my own business as well as doing so for others in various fields.
Let’s look at some of the basics that I think every business owner ought to know.
Why Learn The Basics?
Payroll is an often outsourced duty for businesses. With a variety of regulations regarding how you compensate your staff, which can vary by state, as well as the ever-changing requirements for record keeping and filing business taxes, payroll management is complex enough to be a career all by itself.
The need for experts to handle payroll has created a huge market for payroll outsourcing. According to a December 2023 report from market analysis company Business Research Insights, the global payroll outsourcing market value was $10.04 billion in 2021 and is projected to reach $17.69 billion by 2031.
But even so, you as a business owner are well-served to understand some basic processes with paying your staff. Labor costs can be one of the biggest single expenses, and the average cost of labor is between 20% and 35% of a business’ gross sales. It’s important to understand the basics of this expense to ensure that you can work with professional payroll service providers to create the best payroll processes and systems.
Not every system works for every type of business—you wouldn’t create the same payroll system for a private healthcare provider that you would for a fast-food franchise. A good payroll system must be accurate and timely, both in issuing pay to employees and keeping records. A poorly managed payroll system runs the risk of dissatisfied employees, high turnover and costly tax miscalculations that can rack up government penalties and interest.
A professional payroll company can help save a business owner’s time, allowing them to focus on their business and customers. But to create a system that can accomplish this, it’s important you know enough to know what to ask for from your payroll provider and if your provider is delivering what was promised.
Payroll 101
Now that we’ve established why it’s important to know the basics of payroll, you might be wondering where to go to learn them. One of the best places to turn to is your professional network. Connecting with other business owners and business support centers will give you people to ask for information, as well as trusted sources for referrals. Online business articles from reputable organizations are also a good source. Finally, if you have doubts or uncertainties about anything you’re told regarding payroll, don’t be afraid to ask for a second opinion, or even a third one, to verify the information.
In order to work with a payroll provider to create a good system, you should plan to meet with them three to six months prior to hiring and paying your staff. Most payroll processes can be set up and ready to go in two to four weeks. However, if your business needs additional systems beyond just calculating, issuing and recording payroll, that will mean more setup time. Additional systems your business may need include hiring tools, employee manuals, benefits packages, scheduling tools and time management tools.
The most important aspect of a payroll system is that the system aligns with the best practices for your business. Researching your industry’s standards when it comes to paying staff is key. You’ll know things are coming together when your system is easy for you and your provider to manage. A user-friendly payroll system is essential to ensure your staff is paid promptly and comprehensive records are kept. A secure, easy-to-use, technology-based solution is most often your best option.
Another important aspect of a payroll system is how it handles taxes. Your system should calculate all the taxes that need to be recorded and withheld from each employee’s paycheck and keep a thorough, efficient record of these withholdings. Lastly, make sure you and your service provider are keeping your system and the technology you use for managing payroll updated. As standards, regulations and technology change, your payroll system needs to change with them.
A Vital Component
A good payroll system is a vital component of any business, a cornerstone you can’t do without. If you’re running a large company, you may be able to afford to hire trained professionals like accountants and payroll managers to handle these administrative jobs in-house. But for the small-business owner, the answer usually comes down to either doing the job yourself or outsourcing.
With so many hats to wear already as a business owner, balancing the books for payroll is one thing you probably don’t need to add to your duties, especially if you’re not trained in it. But even when you outsource, you should strive to learn the basics of payroll.
Understanding the basics will help you make more informed decisions about who to use for your payroll service, what to ask for when creating your payroll system and what to add later when the time is right.
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