The Struggles of Managing Payroll in a Growing Small Business

Payroll may seem simple enough when you first start a business. After all, how difficult could it be to pay employees the same amount regularly? Pretty hard, it turns out.

Between managing employees, ordering inventory, and balancing expenses with revenue, ensuring your employees are paid accurately and on time is another responsibility to worry about. Here are some payroll struggles growing small businesses face and how to manage them.

1. Navigating laws and regulations

In college, my boss once told me that I and other workers wouldn't get paid on our regular pay date because the company made a mistake with payroll. Instead, we'd have to wait until the next pay run to receive our checks. I was shocked that this was legal, but it apparently was in our state.

Any time you pay people money for work, you have to follow federal, state, and local laws. These can include rules about when your employees are paid, overtime laws, and restrictions on how long minors can work.

For example, California may require some businesses to pay their employees weekly, while Idaho employers may only need to run payroll monthly.

2. Keeping official records

Payroll isn't just about paying employees on time; you also need to keep accurate records of how much you pay your employees. The federal government has record-keeping laws set by the Fair Labor Standards Act (FLSA).

One of the most important is that business owners need to keep payroll records for at least three years for non-exempt employees, including hours worked, wages earned, pay rate, overtime, and deductions. Sure, you could keep a shoebox of wage receipts crammed in a broom closet, but you'll likely sleep better at night managing payroll records through an app.

3. Figuring out taxes

Small business owners are responsible for accurately calculating taxes from employee payroll. This includes federal requirements like Medicare, Social Security, and unemployment insurance, as well as other state and local taxes.

Considering that payroll taxes are by far the largest source of revenue the IRS collects, small business owners need to ensure they calculate payroll taxes correctly.

4. Learning new tech

Some small business owners may find it difficult to switch to a new software program to better organize their payroll system. The good news is that you don't need to be a tech whiz to get your payroll right.

Some of my colleagues at The Ascent reviewed the best payroll software options and found plenty of low-cost options. Many even include robust features like direct deposit, multistate payroll, and automated tax calculations.

5. Analyzing payroll expenses

Growing small businesses constantly assess how much growth is the right amount and how much is too much. Payroll software can help make this easier by eliminating some of the guesswork.

For example, by looking at your payroll expenses over the previous six months, you can determine whether adding a new employee fits into your budget and how much additional sales you'll need to offset that cost.

This one thing will make payroll much easier

I've already mentioned a few times that having the right payroll software can help grow small businesses, but it's worth repeating. Spending a little time testing out one or two payroll systems will give you a good idea of what features you want and which work best for your business.

Just don't wait until your business is growing quickly and then look for the right software. You'll avoid additional stress by picking your software upfront and letting it scale along with your business as it grows.