Business Payroll: The Best Methods of Paying Employees
About 76% of businesses pay employees either weekly or biweekly.
Your employees depend on you to pay them on time. They also need to get paid in a way that’s convenient. You need to pay them in a manner that allows you to track your payments.
How can you make sure that your business needs and the employees’ needs are met? Read on to learn the best methods for paying employees.
They said that cash is king, but that’s not quite true anymore. Only an estimated 18% of Americans pay for their purchases with cash. They find paying with a debit card is more convenient, secure, and easier to track.
They don’t want to get paid cash because it’s hard for them to manage. Plus, without paystubs, they can’t prove income to rent an apartment or buy a home.
From your perspective, paying your employees with cash is like asking for trouble from the tax authorities. You have to have pristine records and incredible organization skills.
If your business is audited, it will be difficult to prove that your business isn’t adjusting the books. It’s much harder to keep a paper trail with cash payments.
To alleviate the concerns of cash payments, you can always cut a check. There are two problems with checks.
The first is that they cost more money to print.
Your bookkeeper will have a difficult time managing your books because not all checks are cashed at the same time. There are checks that get lost, thrown in the laundry, or not cashed at all.
It’s common for employees to ask for a new check, which can cost your business money to print.
For employees, they don’t prefer to use checks because they have to run to the bank or wait for the funds to clear their accounts.
On the plus side, you’ll have a paper trail that will help you maintain good records.
It’s common for startup businesses to offer new employees sweat equity as payment. The employee puts in the work now and gets paid in stock. This can help you defer payroll taxes and your employee has a chance to build wealth.
It is possible that the stock doesn’t do well, which will leave your employees without money and less motivated to work.
About 82% of employees are paid by direct deposit. This is the most convenient method of payment for your employees because they don’t have to run to the bank or wait for funds to clear.
It’s easy for you to manage and track, but direct deposit costs more than cutting a check. You may find that there are some employees that don’t have bank accounts, so this option won’t work for them.
Banks recognize that there isn’t a perfect way to pay your employees. They’re starting to adopt a new employee payment method that can work for everyone.
The payroll card is convenient, trackable, and can serve all of your employees. Your employees have to manage these cards like they would any other debit or credit card.
How to Run Payroll Quickly
If you’re like 86% of business owners, you’re involved in one financial aspect of the business, whether it’s paying payroll taxes or running payroll.
Payroll taxes take up about five hours a month, and payroll can take up hours each pay period. You need to find a way to run payroll quickly and efficiently.
Set Pay Periods
You learned that most businesses pay employees either weekly or biweekly. If you pay employees weekly, you need to make sure that you have the bandwidth to do that. You may need to hire a dedicated bookkeeper to run payroll for you.
The alternative is to switch to a biweekly or semimonthly schedule. This ensures that your employees are paid regularly and you don’t have to spend too much time each week on payroll-related activities.
Set Rules for Timesheets
Your pay periods should be listed in your company policies. You should also have policies regarding timesheets.
For instance, employees should turn in their timesheets by noon the day before you run payroll. They also need to ensure that their timesheets are accurate.
You don’t want to be in a situation where you run and re-run payroll because of late timesheets and mistakes.
You do want to pay employees what they earned. A policy that outlines how timesheet errors are handled gives you the chance to set ground rules for everyone to follow.
An example is employees report timesheet mistakes to HR and they’re corrected in the next pay period.
Use a Payroll System
You don’t want to be in a position where you have to manage payroll in a spreadsheet or using handwritten notes. You’ll have to constantly refer to W-4 forms and the IRS withholding tables to figure out withholdings.
A payroll system simplifies that by doing the calculations for you. Of course, you have to enter the information correctly, but payroll will go faster with fewer errors.
Plan for Payroll Taxes
When you hire your first employee, you have a lot more responsibility for your business. You should learn ahead of time what those responsibilities are and how much they’ll cost.
Payroll taxes are part of the costs of being an employer. You withhold taxes for Social Security and Medicare, which total 7.65%. You then match the funds as your contribution to these programs.
Since they’re flat percentages, they are easier to plan for. You should set aside funds to cover payroll taxes.
Paying Employees Using Payment Methods That Work
There are several payment methods for paying employees. You need to make sure that you choose the payment options that are good for your bottom line and your employees. You may decide to offer a couple of options to pay employees.
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