Best practices for employee payroll management

No business owner likes to run payroll; it’s one of the least fun jobs that a business owner might do throughout the week.

A payroll management system helps employers more easily pay their employees. Simplifying this process makes running payroll less time-consuming and less stressful for business owners. Let’s look at some tips and tricks for making payroll management as simple as possible.

Salaried or hourly employees?

One of the first major things that you need to figure out before paying employees is if they will be paid hourly or be on a salary. Hiring an employee on a salaried basis simplifies monthly payroll management, but you’ll likely also be required to provide other benefits.

For hourly employees, be sure you have a tracking system in place to make sure you’re keeping track of how many hours each employee works.

When are employees paid

It’s important to know how often you will pay your employees. You may designate pay periods to happen weekly, bi-weekly, or monthly. Your payroll management system will run more smoothly once you decide what your pay periods are. Knowing on what schedule they will be paid also help employees to budget the previous paycheck.

Classify employees

Similar to deciding if an employee is salaried or paid hourly, you must classify your employees. Large employers may have employees in each of these categories; employees don’t all have to be in the same category.

You may have full-time employees, part-time employees, independent contractors, and interns. The amount of tax and other benefits you pay for each employee will be dependent upon their employee classification.

Use software or external company

Depending on the size of your business, the number of employees, and complications of your employee payroll management, you may want to hire an external company or use software to manage your payroll management system.

A payroll management system can make payroll management for your company much simpler for you, allowing you to focus on more important tasks.

Save time and money

Keeping payroll management simple allows you to save time and money. When you’re running a business your time is important, and payroll management is likely not the most important way to spend your time. Having a simple payroll management system allows you to focus on the most important parts of your business and save time and money.


One of the important aspects of payroll is that it tracks where your money is going. Employee payroll is one of the major components of your company’s financial system. For most businesses, paying employees is the most expensive annual cost.

Using an employee payroll management system can help you to keep track of where funds are going and to make sure that the funds are going to the right people at the right time. Your system will also help you to keep track of the proper paperwork for employees such as W-2s and W-4s which must be kept for certain periods of time.

Automate tax payments

Some payroll management systems will automatically pay your required state and federal taxes. This type of automation can make paying taxes simpler and take one task off of your to-do list. Without automation, you might forget to pay your taxes in a timely manner which can incur fines and extra charges.

Calculate benefits and raises

A payroll management system can also help you to automatically calculate and include raises and benefits. Benefits are a great way to offer something to your employees in exchange for work that costs the company less than an actual raise in their salary.

Benefits might include a stipend for child care, tuition assistance for education, a new laptop, or additional insurance. These benefits may give the company a tax deduction or be tax-free, lowering your overall cost. These benefits are good for the company and your employees. With an automated employee payroll system, giving these benefits is a lot easier than when managing payroll yourself.

Make a budget

Without a budget, you could run into the problem of not having enough funds to pay your employees. Part of managing an employee payroll system is managing a budget. A proper budget will make sure that your business has enough funds to pay your employees, pay their social security and Medicare taxes, and pay unemployment taxes.

Stay ahead of these expenses by having a budget.

Make information accessible

Not all companies choose to do this, but you can make your payroll management information accessible to employees. Some companies even keep open books, meaning that any employee can see all of the payments and expenses of the company at any time. For employees, an open book company builds trust. The employees can examine the books and know where the money is going and how much each person is making.

Use a calendar

A payroll calendar, which is a specific type of calendar, makes it easier to remember all of the dates and tasks that are required for managing a payroll management system.

A calendar helps to remind business owners when to pay state and federal taxes and when to pay employees. Making all of these payments on time is important for business owners to not incur fines and annoy employees.

Focus on accuracy

Accuracy is more important than speed when it comes to employee payroll. Having to go back and fix mistakes that are made when in haste is more of a problem than doing it right in the first place. Be accurate and thorough when running payroll to make sure that people are paid correctly and taxes are paid on time.

Get employees involved

Whether using an employee management system or not, you don’t have to do it alone. You can ask your employees to help you out by having them record attendance hours, sign off for paid leaves of absence, verify expenses, and perform other payroll activities when possible.

The burden of payroll doesn’t have to be the sole responsibility of a business owner. Asking other people for help can make payroll management easier. If you delegate tasks to employees to help with the employee management system, ensure that they are properly trained and that they understand how important they are to the functioning of the system.

Use direct deposit

One of the easiest ways to make a payroll management system faster and easier for your business is to use direct deposit.

The setup of a direct deposit system can be time-consuming at the beginning, but in the long run, the system is much simpler and faster for your employees and your business.

Things you may need for employee payroll management

When operating an employee payroll management system, there are a few things that you might need to make sure that the system functions smoothly and easily for your business.

Employer identification number

To process your business’s taxes, you will likely need an employer identification number or EIN. This number is given to businesses by the IRS. If you don’t already have one, contact them to get one. You won’t be able to properly manage an employee payroll system without an EIN.

If you’re hiring contract workers, they may be paid under their EIN instead of their social security number.

State or local identification numbers

For some state or local governments, a business is required to have an identification number in addition to their federal EIN. Check with your local and state government to find out if there’s anything you need for filing your businesses state and local taxes.

Employee paperwork

All new employees will need certain documents to begin working for your company and be included in your employee payroll management system. That paperwork might include a W-4 and other documents.

Employee compensation terms

Before making an agreement with an employee as to the terms of their compensation and benefits, make sure that your business has written guidelines. Each employee must sign a contract agreeing to the terms of the benefits and payment system that are in place for your business. This type of contract helps to protect both your business and your employee.

As a new employer, it can be tough to learn all of the ins and outs of a payroll management system. There are many pitfalls that are difficult to predict and easy to fall into. We hope that these tips help you to create and use an employee management system for your growing business.

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