Your startup is thriving. You’ve exceeded sales goals, have a strong cash flow, and have established yourself solidly in the marketplace. If you’ve met revenue targets and are experiencing a high demand for what you offer, perhaps you’re thinking of scaling up. It’s an exciting place to be, for sure. But there’s also plenty to think about as you set your sights on expansion—payroll, for instance.
Until now, you may have been a relatively small (albeit mighty) organization. Maybe there was no need for a sophisticated payroll software system or a dedicated finance or HR department to handle your payroll needs. But typically, scaling up means hiring more people. And your existing payroll system may not cut it.
For example, if you’re currently handling payroll manually or with a paper-based system, you likely already know it is a tedious and time-consuming task. Plus, there’s little room for error as all salaries and deductions must be accurate, and there are many recordkeeping requirements. The good news is that there are tips and tools you can use to handle your payroll better as your startup expands. Here are a few ways to start scaling your payroll for growth.
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Federal, state, and local jurisdictions regulate how your employees are paid, and the laws and requirements change constantly. As an employer, you must adhere to the rules governing your area, including those related to the following:
Non-compliance can put you at risk for fees, legal action, and the reputation of your business. Ensure you understand all the rules, or enlist the help of an accountant. You may also want to consider payroll software that will calculate, file, and pay your payroll taxes automatically once you set up your payroll.
Among the compliance issues you’ll need to be aware of as you scale up are those related to employee classification. Will a new hire be exempt or non-exempt? The FLSA defines exempt employees as those whose employers are not obligated to pay overtime if the team member works over 40 hours in a workweek. Non-exempt employees are eligible for overtime pay at one and one-half times their regular pay rate, which must be at least the minimum wage.
Misclassifying workers, including classifying direct hires as “independent contractors,” is sometimes used by unscrupulous employers to avoid paying overtime, taxes, and benefits. Whether intentional or not, classifying workers incorrectly can put you at risk of financial penalties and legal action, so taking care when classifying your new hires is essential. It can be wise to consult with a lawyer or human resources expert to ensure that you are compliant.
If your non-exempt employees use paper timesheets, now is an excellent time to reassess how you record their working hours. You may want to consider transitioning to an online and mobile time-tracking system. This type of system simplifies the time tracking task by enabling your workforce to conveniently track and submit their time from their desktop computer or mobile devices.
Monitor your team, approve time, account for hours easily, and get real-time insights so you can work more efficiently. Some systems include a mobile app so that team members can clock in and out right from their phones—a big benefit if you have employees that travel to remote job sites. Plus, it may also have mileage tracking capabilities, making tax filing and reimbursement easy and accurate.
More employees mean more records…and the IRS requires that you maintain employment tax records for at least four years after filing the fourth quarter of the year. Below are some of the records you’re required to keep:
Storing and organizing all these critical records can be challenging, especially as you grow. Manually-handled documents could be misplaced, not to mention inaccurate, if numbers are calculated incorrectly as a result of human error. A more automated online payroll system can minimize your paperwork and enhance efficiency by keeping all employee data easily accessible from a central location.
Until now, manual payroll may have suited your business just fine. Using a paycheck calculator and manually remitting payroll may have been all you needed to compensate your employees and comply with payroll regulations accurately. But as you prepare to scale up, you may also need to up the ante on your payroll management system.
Advanced payroll software can make paying your team—and handling a variety of HR functions—easier. From time tracking and automatic payroll scheduling to setting up direct deposit and payroll tax calculation and filing, payroll software can streamline the payroll process while giving you total control and oversight. It can sync with other payroll and other accounting apps and provide powerful reports so you know how much you are spending on labor which will help with project management and job costing. A payroll system can really pay off in time saved, accuracy, efficiency, and peace of mind for you and your team.
If you’re ready to scale up—congratulations! Keep these tips in mind on your journey forward. Ensure your payroll method is ready to grow with your company as you transition your business to this next stage of growth and success.
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