Let’s face it: You need five ways to reduce costs in a business because as a business owner, you know all of the costs that can barrage you on a regular basis. Probably the largest and most overwhelming is also the lifeblood of your business: your employee wages.
While payroll may seem straightforward, there’s much more to it than you might think.
Here are some things to consider when handling your payroll services and operations:
- Are your checks automated to be weekly, bi-weekly or monthly?
- Do you offer direct deposit?
- Are you filing your taxes on time to the IRS?
- How consistent are you with electronic billing reports?
- Are you reporting new hires within the established deadlines?
- Are you submitting W-2s to previous employees and offering electronic copies?
- Have you perfected wage garnishments on your payroll?
- Do you know what to do for multi-state payrolls and special pay arrangements?
- Are you handling holiday pay properly?
- How efficient are you at calculating overtime to employee checks?
- How convenient is your on-site check printing?
- Do you offer Visa cash cards for employees without bank accounts?
Can you say you handle all of these things without a hitch or mistake? There’s no shame in not being able to — you’re a business owner, not a superhero! In order to perfect the payroll process and find ways to reduce costs in a business, there are a few things you might want to review and consider.
1.) Outsourcing Payroll
A recent study showed that outsourcing HR functions (including payroll) help businesses see a cost efficiency of 32%, in comparison to multiple-vendor organizations or a best-of-breed in-house approach.
Consequently, in-house payroll “increases TCO by 18% on average.” If you’re looking for ways to reduce costs in a business, outsourcing is a tried-and-true method that has been proven in countless studies to be effective. An outsourcing company saves you money in the following ways:
- You eliminate excess time that you would have to spend on administrative duties
- You’ll never pay another IRS penalty again from tax filing
- You can rid yourself of hidden costs and fees that may come up each pay period
- You’ll also improve your record keeping and filing system in the event of a state or federal audit
Chances are you or your in-house staff assigned to HR and payroll tasks are draining your resources, rather than lending to the growth of your business. If you haven’t already, it’s time to reevaluate your Total Cost of Ownership (TCO) to see where your revenue is being distributed.
You will be surprised how much time it takes in-house staff to complete payroll tasks versus an outsourcing company. The latter is an endless source of support and professionalism who are experts in all things payroll. Simply put, they’re quicker, cheaper and do it better. In today’s society of down-jobbing and frequent turnover, you need an experienced team on your side whose best interests are with your business.
2.) Change Pay Frequency
Frankly, frequent payroll places considerable strain on administrative duties and is much more expensive to maintain. It’s important to balance employee happiness with what makes fiscal sense for your business.
Having biweekly paychecks lowers expenses considerably and makes updating the payroll records more convenient. This also offers more time in-between checks, allowing for taxes to be better distributed and minimizing the possibility of paying the IRS for mistakes. You should scrutinize your payroll schedule with a figurative magnifying glass and see if biweekly, semi-monthly or monthly schedules may be better for the majority of your employees and your business. Either way, weekly checks are not fiscally pragmatic for small businesses.
3.) Utilize HR Technology
Do you have HR software or an HRIS system implemented? Many times, software can be bought in different ways, including:
- Pay-per-employee per-month
- Pay-per-user monthly
- One-time lump sum payment
These ways to reduce costs in a business may seem daunting, but what becomes salient upon the usage of an HRIS are the improvements in payroll productivity and daily tasks. Many tasks that took manual setup before and may have been time mongers for multiple employees are eliminated by the use of automation. By design, the software is supposed to facilitate HR tasks more quickly and efficiently — and with less mistakes and margins for error, too.
This jump in productivity means a long-term reduction in payroll costs that can come from errors. Even a slight human error on payroll can result in a significant financial consequence for a company; with software, this minimizes the risk, saving you money.
4.) Efficiency is Key
Ask yourself this: what about your payroll is costing you the most? Once you’re able to pinpoint the problem of the exorbitant costs, you can deduct the solution. Printing and distribution expenses that come with payroll in this day and age are extra and unneeded expenditures. Instead, consider implementing electronic payroll or pay cards in order to enable automation. Direct deposit also works with cost-effective and automated savings.
A figure by the Hacklett Group and the Payroll Association showed that companies that have high levels of participation with electronic payroll cut processing costs by 50%. Whether you utilize a pay card or direct deposit, this eliminates the step of printing and signing checks completely and the funds are directly distributed into employees’ bank accounts.
5.) Work with a PEO (Professional Employer Organization)
Have you thought about the cost-effective benefits that come with joining a PEO? In terms of payroll, a PEO can handle all of the processing, management and administration that comes with payroll. No small business owner has time to review compliancy and tax regulations on a regular basis, and the fact that these are constantly changing don’t help.
PEOs can handle the following payroll tasks in an affordable and scalable way:
- Complex payrolls
- Per Diems/Non-Taxable Reimbursements
- Direct Deposit
- Payroll Tax Compliance
- Visa Cash Cards
- And more!
Many of the questions we asked previously encompass a PEO’s tasks, as well. Having these tasks in the hands of an employer organization ensures efficiency and accuracy, and reinforces savings for your company concerning payroll.
Being a small business owner isn’t easy, as the entire machine of the small business is essentially dependent upon you. A variety of topics and methods of reducing your small business payroll operations have been introduced in this article, but many other ways also exist. It’s the conquest of figuring out which collective methodology works best for your small business that is key.
Take some of these closing points with you as you seek to improve your business’s payroll operations and find ways to reduce costs in a business:
- First Step: Understand What it Takes to Effectively Run Payroll Operations Yourself
- Establish a Consistent Profit and Loss Report
- Choose if Outsourcing or Hiring an Accountant/Bookkeeper will be more Beneficial
- Explore Other Options to Cutting Payroll Costs
- Implement These New Practices in Your Small Business