Managing payroll for a small business is no easy task: there can be a lot of paperwork and your employees could become frustrated if this important part of their jobs isn't handled properly. Follow these steps to help you manage your staff payroll and benefits.
Managing Employee Payroll
When we talk about managing your payroll for employees of your small business, what we’re really talking about compensation, which is payment to an employee in return for their contributions to the small business, e.g. doing their job. The most common forms of compensation at a small business are wages, salaries and tips.
Compensation is usually provided as base pay and/or variable pay. The payroll rate for a given employee is based on their role in the small business and the geographic market for the expertise required to perform a specific job. Variable pay is based on performance, meaning how well an employee is filling their specific role or meeting their goals. Payroll plans that include performance bonuses are an example of variable pay.
One specific concern you will need to address in building your payroll system is that employees have certain funds withheld from their payroll checks, which may include federal income tax, state income tax, FICA (social security) contributions and employee contributions to the costs of certain benefits such as savings accounts, medical insurance, and retirement accounts.
Jobs in small businesses have two classifications: exempt and non-exempt. Professional experts, management and other types of skilled workers are classified as exempt. Exempt jobs are salaried, awarding a fixed amount of money during a certain period of time. It’s not uncommon for employees of small businesses or startups to be classified as exempt, as these employees may work an uncommon amount of hours. It’s not uncommon for exempt professionals to receive higher compensation and benefits than non-exempt employees.
Unskilled or entry-level jobs as usually classified as non-exempt. These are generally hourly positions that are also eligible for overtime for hours worked above 40 hours or work done on holidays or certain days of the week. Each job must have the same pay range for anyone performing that job.
Before setting up a payroll system for your small business, we suggestion you read the Small Business Administration's “10 Steps to Setting Up a Payroll System.” It’s a great common-sense guide to the nuts and bolts of setting up your payroll system for your small business.
Managing Employee Benefits
Benefits for employees working in a small business typically refer to items like:
Employee stock ownership plans
Benefits are increasingly expensive for small businesses to provide to their employees, so the range and options of benefits are changing rapidly to adapt to the volatile small business market. Benefits are forms of compensation, other than payment, that are provided to employees of your small business in return for their contributions to the company’s success. Some benefits, such unemployment and worker’s compensation are actually federally required rights, rather than true benefits. Examples of employee benefits include:
Insurance (medical, life, and dental insurance, disability, unemployment and worker's comp)
Benefits of working for a small business may be tangible or intangible, and may include appreciation, promotion, a quality work environment, or teamwork.
In competitive markets like Silicon Valley, Boulder or Portland, employers go to great lengths to retain employees, providing benefits like in-office oil changes or mobile medical labs for checkups. The types of benefits you offer as a small business will depend on the type of work environment you are trying to cultivate in managing your employees.