11 Tips for Managing Payroll Like a Pro

Managing payroll seems straightforward: you have employees, and they need to be paid. However, it’s not as simple as it sounds.

Payroll management is a crucial aspect of any business. Accurately compensating employees requires attention to detail, punctuality, compliance with tax laws and employment regulations, and meticulous record-keeping. With all these elements in play, the process can quickly become overwhelming.

Whether you’re new to handling payroll or seeking to improve your existing process, the tips in this article will help you master payroll management.

1. Choose an Excellent Payroll Service

Although payroll can be done with the use of spreadsheets and manual payment processing methods, there’s no reason for doing so with the variety of professional payroll services available. It is a smart idea to leverage the power of automated payroll processing and administration by using a system made specifically for those tasks.

Choosing the right payroll system starts by defining your needs. Some important items to consider include:

• Employee Location: Payroll laws and regulations differ by state and can become more complex when paying workers outside the U.S. Some payroll services, like Patriot, cater exclusively to U.S.-based companies, while others, like Deel and Papaya Global, are ideal for businesses with global payroll requirements.
• Payment Preferences: Determine whether employees prefer paper checks or if direct deposit options are essential for your workforce.
• Payroll Frequency: Assess how often you need to run payroll and what processing times are required.
• Types of Payments: Identify the various pay types (hourly, salary, or fixed payments) and employee categories (full-time, part-time, or contractors) in your organization. Most payroll providers can handle all types, but some, like Gusto, offer additional savings for contractor payments.
• Payroll Responsibility: Consider who will manage payroll in-house. If someone within your company will handle it, ensure the system is user-friendly. If you plan to outsource the entire process, you might opt for a full-service provider like Paycor or SurePayroll.

By understanding your current and future needs, you can choose the most suitable payroll service provider for your business.

2. Familiarize Yourself with Federal, State, and Local Employment Laws

If you’re responsible for payroll, it’s crucial to understand the laws and regulations related to employee pay and taxes. Since payroll laws can vary significantly by state, it’s important to be knowledgeable about each state where you employ workers. If this seems overwhelming, consider checking out our PEO guide to find companies that can help you maintain compliance, especially if you’re nearshoring services.

Many payroll platforms feature workflows and automations designed to keep you compliant with pay and tax-related changes. Take advantage of resources from their knowledge base, webinars, and blogs to stay informed. Additionally, training programs like those offered by HR Certification.com can help you stay up-to-date on effective payroll management practices.

3. Set Time Reporting and Approval Guidelines

Managing compensation involves defining how pay is determined (salary vs. hourly), calculated, tracked, approved, and distributed. Establishing clear guidelines for procedures such as time tracking, approvals for hourly employees, time-off requests, and pay deductions is essential. Implementing these guidelines and accuracy checks will help ensure a smooth and timely payroll process with minimal errors.

4. Create a Payroll Calendar for the Year

Determine how frequently you will pay employees—weekly, biweekly, semi-monthly, or monthly. Establishing a payroll schedule that meets your workforce’s needs is vital. Bi-weekly payroll is the most common frequency, accommodating both salaried and hourly employees while being manageable for small businesses. A weekly schedule may be more suitable for businesses with a larger hourly workforce.

Once you’ve established your pay schedule, communicate it to your team and plan your payroll tasks accordingly to guarantee timely processing.

5. Decide on Employee Payment Methods

Direct deposit is a widely preferred method for distributing employee paychecks, but you can also opt for paper checks or payroll cards, which offer flexibility. Assess which payment options work best for your employees and ensure you have the necessary resources to implement these methods effectively.

6. Ensure New Hires Complete All Payroll-Related Documentation

Whenever a new employee joins your team, it’s crucial to verify that they submit all necessary payroll documents. This includes federal and state tax forms. If the employee is eligible for direct deposit, company-sponsored benefits, or other perks that require deductions, ensure that the enrollment processes for these programs are completed. Typically, your payroll software can integrate these enrollments into the onboarding process or whenever the employee becomes eligible.

7. Review Pay Adjustments for the Current Pay Period

While payroll can be fairly consistent from one period to the next, there are often unique changes that need your attention as you prepare payroll.

When employees modify their tax withholdings, adjust deduction amounts, or receive additional pay for bonuses or overtime, it’s essential to review and approve these changes. Some payroll systems will alert you to special or non-standard pay actions during a particular pay period, while others may require you to manually document these changes and obtain necessary approvals. Be sure to take note and review these adjustments thoroughly.

8. Review Payroll Submissions with Your Payroll Team

Building on the previous point, some payroll systems, such as ADP, offer a side-by-side comparison of the payroll totals from the last pay period and the current one you’re about to approve. This feature allows you to double-check and understand any significant variances in payroll dollar amounts before processing paychecks.

It’s also wise to have a secondary reviewer conduct a final check and approval before payroll is processed. This serves as a last opportunity to catch any errors before funds are released.

9. Pay Payroll Taxes and File Required Paperwork

Employers must pay payroll taxes and file the necessary paperwork with federal, state, and local authorities. Maintaining a separate bank account specifically for these taxes can help ensure timely payments. Many payroll platforms automate the filing of required forms, manage tax payments from your designated accounts, and keep records for your compliance documentation—this is usually set up during the initial process.

While it’s possible to handle this manually, noncompliance penalties can be severe. Automating these tasks through your payroll service provider simplifies the process and alleviates one critical responsibility from your workload.

10. Maintain Accurate Records

You should keep essential information on each employee, such as their name, address, birthdate, and Social Security number. Additionally, document each employee’s pay rate and payment frequency. For non-exempt employees, ensure you have a record-keeping system that complies with the Department of Labor’s Fair Labor Standards Act, tracking hours worked and work schedules accurately.

Accurate record-keeping also involves following proper termination procedures for all employees, issuing final paychecks promptly and according to state guidelines, and accurately stopping paycheck deductions when necessary.

11. Conduct Periodic Audits of Your Processes, Systems, and Practices

Conducting periodic audits can reveal opportunities to streamline and enhance your payroll processes. Engage with employees and managers to discuss any issues or errors they’ve encountered and identify potential solutions. Additionally, review past payrolls to ensure no mistakes were made and that any errors have been corrected. Finally, collaborate with your payroll team members and/or representatives from your payroll service provider to explore tools and resources that can further improve the process in the future.

Pros & Cons of Payroll Management

Pros

• Ensures employee satisfaction through timely and accurate payroll processing.
• A variety of software solutions are available at different price points to suit your specific needs.
• Automation and technology enhance efficiency, making payroll management straightforward and hassle-free.

Cons

• Manual processes can be challenging to manage and are susceptible to errors.
• A lack of payroll expertise can expose your business to compliance risks.

The Bottom Line

Effective payroll management is a crucial component of running a successful business. By implementing strategic planning, standardization, a system of checks and balances, and utilizing software, you can streamline payroll processes. These measures will help reduce manual tasks and minimize errors, ensuring that your employees are paid accurately and on time.