9 Ways to Reduce Payroll Expenses
- Use a time keeping system. Statistics show employees consistently overstate hours as much as 20 minutes per day just by rounding up. Using a time keeping system can help to more accurately keep track of employee time. Even for clerical staff, a simple web time keeping system can help you accurately monitor hours.
- Watch overtime. Companies must pay non-exempt employees for overtime hours, even if the company has a policy that prohibits overtime work. You can only enforce a no overtime policy, typically with stringent oversight or with termination; you cannot just refuse to pay overtime. Especially watch out for non-exempt employees that work through their breaks and lunch hours.
- Use Two. Many companies are paying penalties consistently and don’t know it because the employee in charge of making tax deposits also reconciles the bank accounts and does not inform the employer of their mistakes. Do not have the person who writes checks also balance bank accounts. This will also help prevent fraud.
- Pay payroll taxes timely. The IRS estimates that 40% of small to mediam sized businesses incur a payroll tax penalty with the average of $845. This does not include the time needed to abate the penalty or potential interest added to the penalty.
- Set your payroll schedule to match your cash flow. This avoids costly NSF fees from your bank. Many employers do not realize that they can set the pay periods and pay dates to best suit their cash flow. For example, if you are in retail and most of your revenue comes from weekend sales, your account may be flush with money on Monday. Set your check date to be Tuesday. Just remember to comply with your state regulations.
- Utilize direct deposit. This saves administration costs of having to hand out checks, reprint lost checks, and eliminates escheatment.
- Reconcile at year end. Your quarterly reports and tax deposits for the year need to match with annual filings such as W2’s and state annual reconciliations. Take the time to verify they match before you send out your annual reports. This will save you future management expense.
- Review payroll reports. Stories abound about “phantom” employees, especially in larger companies. Make sure you review your payroll and let your employees know you keep a watchful eye on all that goes on in your company. You should have an idea of what you expect your payroll dollars to be prior to producing payroll. Then double check that what you expected is what you got. “Use two” applies here, also.
- Consider using a payroll provider. For many companies, outsourcing payroll makes a lot of sense. When you consider the time necessary to administer payroll, prepare reports, make payments and deal with mistakes, outsourcing often reduces not only expenses, but also stress. Remember, for most industries, your employee payroll expense is the highest expense item you will have. Using a payroll service can help you manage that process so you can concentrate on more important matters.