How Using Conventional Payroll Methods Harming Your Business?

‍Payroll methods can have a huge impact on your business. They affect everything from how your employees are paid to what taxes you’ll have to pay, to how much time it takes to process payroll and other associated administrative tasks. Many small businesses don’t think of their payroll as a business function, but that can be dangerous. Using the right payroll methods will help you get the right information into the hands of the right people at the right time with minimal errors and in a cost-effective manner. It also helps reduce tax obligations, which is helpful for most businesses.

What is Payroll?

Payroll is a process that manages the flow of money between your company and the various people who work for your business. Every person who works at your company is either an employee or an independent contractor. In both cases, payroll will handle the details of their wages, taxes, and benefits.

If you own a small business, payroll will likely be the part of your accounting that receives the least attention. It’s an important process for keeping your business running smoothly and efficiently, yet it often gets overlooked or treated as a low priority. It can significantly affect your bottom line.

If you’re not using the right payroll methods, you’re hurting your business. Before you get started, you’ll want to have a better understanding of how payroll works.

How Payroll Works

Every business needs to keep track of employee wages and benefits. Payroll does just that. If you own a business you will likely have employees. They could be part-time or full-time employees. Once you have your employees, you will need to keep track of their hours worked, wages, and taxes. You do this all through payroll.

To start, you’ll want to create a payroll record. This is where you will put all the information that your payroll system will use to calculate wages and benefits for each of your employees.

For each employee, you will need to know their:

Wage information

  • Base rate (hourly, weekly, bi-weekly, etc.)
  • Rate of pay (number of hours worked, salary, commission, tip, etc.)
  • Pay frequency (daily, weekly, etc.)
  • Total amount – Hourly rate, weekly rate, bi-weekly rate, annual rate, etc.

Benefits information

  • Health insurance information – Company name, number, type, and cost
  • Retirement account information – Company name, address, account number, and amount
  • Other benefits information – Vacation, sick pay, etc.

Taxes information

  • Internal (company) taxes – FICA (Federal Insurance Contribution Act), Medicare (FICA), and withholding (W-2)
  • External (employee) taxes – Social Security, Medicare, and income taxes
  • Additional deductions – Deductions for a mortgage, children, education, etc.

Other information

  • Employment start and end dates – If you have employees who change positions often, you may want to keep track of their start and end dates.
  • Rate of pay increase – If you want to raise the rate of pay for an existing employee but don’t want to fire them, you can do so. Just change their rate of pay.
  • Leave information – Vacation, sick pay, etc.
  • Other information- Dependents, assets, liabilities, etc.

Wage analysis and payroll software

The information you put in the payroll record is the basis for wages and benefits. The financial institution you use to manage your payroll will then analyze that information to determine how much you owe each of your employees.

Wage and benefits information is usually stored in an accounting software package. After you create the payroll records you will then import the information into the accounting software.

This is where you will find the information that you put into the payroll record.

Time and attendance software

This software is what your employees use to report their work hours and submit their time sheets. It’s often a standalone platform that employees download onto their computers. You may also have employees who report their hours using another method like timecards or an Excel spreadsheet.

Direct deposit and Online Payments

Direct deposit is when your employees’ pay gets deposited directly into their bank account without having to go through the bank. This can be done through your payroll provider or directly with your employer. If you choose to go with direct deposit, your employees will sign a contract agreeing to only deposit government benefits into their bank accounts. Online payments are when your employees choose to pay their bills online, such as their cellphone bills.


Payroll is an essential part of every business, but many small business owners make mistakes that negatively affect their bottom line. The key is to use the right payroll methods for your business.

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