Changing Payroll Systems in 2016? Start Soon
Getting ready to pay your first employee tends to be an eye-opening experience. Who knew that so much paperwork could be involved to dispatch that first paycheck or direct deposit to just one person?
The documentation required for employee compensation has increased over the years. And it doesn’t show any signs of being reduced.
If you’re using a cloud-based payroll application or contracting with a payroll service, you had some direction and guidance for those initial steps. This undoubtedly simplified your job and made you feel more confident than if you were going it alone, but you still had to serve as the middleman between your new employee and the agencies that required information.
Good News, Bad News
The good news is, your work will likely never be as difficult and time-consuming as that first foray into payroll management. But the longer you wait past the beginning of the year, or at least a fiscal quarter, the more labor-intensive the transition will be. That’s because you’ll have to supply varying amounts of detail for your company and for every employee dating from the first day of the fiscal year under the new system.
There are three primary ways that a small business can process payroll for its staff:
Manual. You can do payroll on paper. But if you’ve ever done it this way, you know that this route isn’t easy. You have to remain ever-vigilant to ensure that you have the current payroll tax tables and are aware of other regulatory mandates that will affect payroll. Not to mention all of the income and withholding items for your staff and the calculating of paychecks and taxes.
Advantage: Saves actual dollars (though it eats up money in terms of staff time)
Disadvantage: Time- and labor-intensive
Dedicated payroll services. Businesses that want nothing to do with payroll except to provide information for setup and report hours and other changes regularly have used this hands-off type of system for decades.
Advantage: Saves time
Disadvantage: Can be pricey
Cloud-based payroll applications. You have many options here, ranging from standalone solutions that can be integrated with double-entry accounting software or websites to payroll “modules” that are automatically connected to accounting solutions. Some offer multiple subscription levels so you can either keep or hand over individual elements of payroll-processing.
The best of the cloud-based sites function as payroll services; they walk you through setup on your own computers and you enter hours and changes. Payroll taxes are calculated and paid automatically.
Advantages: Automation, accuracy, speed, flexibility, support
Disadvantage: Monthly subscription fee
If you choose to subscribe to a cloud-based payroll application, the work required to “catch up” your historical payroll information varies depending on which one you choose. Some let you import at least some of your data from other computer-based payroll systems. Some don’t, which means that if you have several completed payrolls that need to be entered, you’ll have a serious data entry job on your hands.
When you switch from one system to another, whatever each is, it’s critical that you don’t leave any gaps in your payroll records. If you leave anything out, your reports will not be accurate. Benefits providers may miss payments or be overpaid, either of which is bad for you and your employees. And you may not submit the correct amounts to agencies for your payroll taxes.
By all means, if you really feel that another method of processing payroll would work better for you, you should consider making the change. But this is an area where an accounting professional can be of tremendous help. It’s not a decision you want to make quickly or without expert input.
Consulting with a financial advisor early will help ensure that you select a system you can live with for a long time, and that fits both your budget and the staff time you have available for this critical, complex element of accounting.