Payroll Management: What Every Business Needs to Know

Payroll management is notoriously a hassle for business owners—but it doesn't have to be that way. We’ve even heard of some business owners who’ve found it to be so simple they’ve done it while sitting on a horse—more on that later. Want in on the secret to easy payroll management? Keep reading to learn more about what it is, why it’s so important, the challenges that payroll managers are facing, and how to overcome them. Giddy up.

What is Payroll Management?

Payroll management is a lot more than making sure your staff is getting paid. While, yes, that is a core function of the job, payroll management is more like a process rather than a singular task. Payroll management is about managing employee salaries, benefits and taxes and involves the tracking of employee hours, time off, benefits, and deductions, all before the final pay is calculated and distributed. And that’s just the beginning. For shift workers, payroll management can be a little more complex. For instance, shift workers don’t always work the typical Monday to Friday, 9 to 5. Their shifts can fluctuate and are often traded between team members to better suit personal needs or scheduling conflicts. Shift workers may also be subject to different laws, regulations, or policies by the business. In fact, U.S. federal law doesn’t mandate any employee vacation time for shift workers, which means that it can be up to the business owner to decide how employees get paid and what they’re covered for. This means that if it makes financial sense for your business to only pay full-time employees for vacation, it’s your decision. No matter your choice, it all has to be managed effectively so your team can get paid what they’ve rightfully earned.

Why is Managing Payroll Important?

Managing payroll is important for a number of reasons. The first is team morale. Without a properly managed payroll and a paycheck that’s on time, employees may be left wondering when they’ll get paid, if their time is being tracked properly, or if their business is in financial trouble. When these questions arise, morale can drop. This can cause reduced productivity, decreased trust in the business, and less engagement from staff. Workers may even begin to look for another job. The next reason why managing payroll is so important is because it’s the law. As a business owner, you’re legally entitled to pay your staff on time. There can be different consequences for paying late depending on where your business resides. For example:

• In California, employers are subject to a $100 penalty if they pay their employees’ regular pay late.
• In Florida, employees can bring a civil theft claim against an employer when the employer hasn't paid wages due. Before they file an action in court, they must provide the employer with written notice of the claim and give them 30 days to pay the amount due.

In addition to the legalities, managing payroll effectively is important because it helps with budget management. Depending on the size and scope of your business, paying your team can be one of the biggest financial parts of what you do. With proper payroll management, you can track hours, time off, vacation, and more and keep it all aligned with your overall budget.

The Important Role of the Payroll Manager

The payroll manager has an important role in a business. This role can often be assumed by the business owner, operations manager, accountant, or human resources specialist. No matter who takes on this important task, the overall objective remains the same: make sure all employees are paid accurately on time and that the business complies with all of the rules and regulations deemed necessary by their state.

How to Manage Payroll

If you’re a business wondering how to manage payroll, we’ve got some good news and some bad news. First, the bad news: it can be a headache with a few too many steps. That is if you take it on manually. If you plan to manage and run payroll manually, whether it’s restaurant payroll or payroll for salaried or hourly employees in another industry, you’ll need to know some important details before sending that check. Here are a few steps to get what you need in order.

Collect Employee Data

Aside from collecting employee names, addresses, social security numbers, and tax withholding information, you’ll need to collect their hourly rate, gross pay, pay frequency, filing status, withholding information, and other deductions.

Track Hours

To manage payroll, you’ll need to have an accurate report of time worked in your employee’s pay period. This includes breaks, vacation time, overtime, any sick days, and shift swaps with other employees.

Calculate Employee Pay

Once you’ve got your information and hours tracked, you can start with the math. Here’s how you’d figure out something like gross pay. First, figure out their hours worked during the semi-monthly pay period. Then multiply that by their hourly pay. For example, if your employee makes $10 an hour and worked 80 hours over 2 weeks, their gross pay would be $800. From the gross pay, you’d subtract payroll taxes and other deductions, like benefits. It’s important to make sure you are deducting the right amount of taxes from each employee’s gross pay, or you could face an audit from the IRS.

Issue the Paycheck

The fun part! After you’ve calculated each employee's pay, you’ll want to issue printed paychecks or direct deposit into their banks. According to the Society for Human Resource Management, about 18% of small businesses with revenue between $10 million and $20 million don’t use direct deposit. If you still like a good old-fashioned paycheck, you’re not alone.

File Taxes

The not-so-fun part. As a small business, you’ll have to file taxes based on your payroll. For example, at the end of the year, employers have to complete Form W-2, Wage and Tax Statement. This government form is so you can report wages, tips and other types of compensation paid to an employee.

Common Payroll Management Challenges

There are a number of common payroll management challenges that businesses might face as they work to pay their staff. Here are 3 reasons why it can be such a challenge to do on your own.

1. Information Overload

There are many factors on both the federal and state levels you need to remember when preparing your payroll, especially for hourly employees. Part of this role is to keep track of and calculate a lot of changing information, like hours worked, breaks, overtime, and PTO. Depending on how these are tracked originally, this could be done in a number of ways like Google Sheets or Excel, or even pen and paper. Either way, you’ll need to make sure employee hours are verified and approved by their manager.

2. Not Enough Time

You know the saying, “You have the same amount of hours in the day as Beyoncé”? We’re going to be honest: nobody has the same amount of hours as Queen B. Especially business owners who are managing payroll on their own. If you’re managing payroll with manual tools like Google Sheets, Excel, or pen and paper, you’ll have even less time on your plate to do everything you need to run your business.

3. Uncertainty About Documentation and Taxes

Once you’ve gathered all of the information you need, it’s time to organize and store it. This step involves a lot of admin work. You’ll need to coordinate information about Employment Insurance (EI) along with withdrawals and deductions that need to go to various government and insurance companies. After that’s covered, you’ll need to provide each employee with a detailed overview of their payroll. This includes the hours they’re getting paid for, their hourly wage, a breakdown of benefits and subsequent withdrawals.

The Role of a Payroll Management System

A payment management system, sometimes called a PMS, is software that can help your business manage payroll efficiently and effectively. Its primary role is to process and track payments without errors, making your day a lot simpler. It might sound like an easy job, but there’s a lot that goes into it. Like organization, for example. A good payroll management system should set up your roster and store employee information, including emergency contacts, certifications, birthdays, and start dates. It should organize all employee e-sign forms and safely store their documents online. Depending on your software, you might even use it to share schedules, send messages, and get your team in sync. Some payment management systems are designed to give your employees a bit more autonomy. For example, the Homebase app gives your team on-demand access to their hours, schedules, earnings, pay stubs, and W-2s. Employees can receive payday notifications so they know when they’ve been paid, and they’re able to submit and track time-off requests and work with each other to trade and cover shifts.

Homebase for Payroll Management

Okay, we’ll admit it. There are a lot of complicated steps to successfully running payroll while staying compliant and paying everyone accurately. But remember when we said there was good news? Here it is. You don’t have to do payroll management on your own. There are online payroll solutions that offer full-service payroll features out there… like Homebase. “I love the simplicity, the time tracking, and the payroll system itself,” says Homebase customer Rob Graft, Owner of Nemesis Industries in Colorado. “It’s so much easier than anything I've used in the past... it's worth every penny, and it's super simple. I've run payroll from literally sitting on a horse, moving cattle, and submitted my payroll.” Homebase payroll automates the entire payroll process for you, reducing the hours you spend doing things manually. We’ll even run payroll summary reports for you, which can be tedious on their own. When it comes to the nitty gritty stuff, Homebase helps you set up breaks and overtime based on your state to calculate hours and wages correctly. You can even calculate, pay, and file your payroll taxes in just a few clicks. With Homebase, you can also automatically submit any new hire reporting and files and distribute W-2s and 1099s. Plus, Homebase stores your time card records to help you stay compliant with FLSA record-keeping rules. Our payroll services can also help prevent payroll fraud among your team members by catching any manipulations or mistakes they may have made to increase their pay. Hey, it happens.

Payroll Management FAQs

What is Payroll Management?

Payroll management is a process that requires a lot of steps, tracking and documentation. It’s about managing staff salaries, benefits and taxes and involves the tracking of employee hours, time off, benefits and deductions, all before the final pay is calculated and distributed.

What is the Role of a Payroll Manager?

A payroll manager has the role of making sure all employees are paid accurately, on time, and while complying with all of the rules and regulations deemed necessary by their state. In a small business, the payroll manager may be the owner, manager or accountant.

What are the Steps in The Payroll Process?

If you’re managing payroll, there are a few key steps you’ll need to consider. First, you’ll want to collect all employee data. This includes names, addresses, social security numbers, and tax-withholding information. You’ll also need employee hourly rates, gross pay, pay frequency, filing status, and other deductions for things like insurance. The next step is tracking hours and doing so accurately. This part includes tracking breaks, vacation time, overtime, sick days, and shift swaps. You’ll want to make sure these times are verified by managers, too. Once this information is collected, the payroll calculations can begin, and employees can get paid, either with a paycheck or direct deposit. You’ll need to remember to document everything for tax time. For small businesses, filing taxes based on payroll is a must-do. This means completing tasks like filling out Form W-2 at the end of the year to report wages, tips, and other compensation paid to employees.

What’s the Difference Between HR and Payroll?

Human resources (HR) and payroll are two separate things. HR is responsible for business operations like recruiting and hiring employees, managing and coordinating benefits, employee compensation, and developing policies that support the success of a business. Payroll is a little different. It makes sure that employees are paid accurately and on time. It also takes care of taxes, manages the deductions, and ensures that procedures are compliant with all laws, including local, state, and federal. You don’t have to be an HR professional or an accountant to run payroll, but as a small business, you might be wearing many hats and taking on many different tasks. If that’s the case, take a break with an app that does that hard stuff for you. Ready to modernize your payroll? Get started with Homebase today.