Payroll is more than just payment
Payroll covers more than just a list of people you employ and what they are paid. It’s also about the tax information and complying with legal requirements.
Most payroll guides look at this topic from the perspective of the business – such as what it can do for you and how you can ensure you comply with relevant laws. Those are important issues, of course, but there's more to it than that. Each name on your payroll is a person. If you treat them as an accounting ledger entry and nothing more, you might miss an opportunity to understand their needs. As a result, your business could risk underperforming.
So in this guide we'll take a broader look at payroll, to give you a better idea of what your employees require. With this knowledge, you'll be able to optimise your payroll process – and get more from your employees.
Understanding employee motivation
As a small business owner you probably have two main motivations or goals. The first is to earn enough money to keep your business going. The second is to grow your business as fast as is sensibly possible.
Your employees' motivations and situations are often quite different to yours. Here are some points to consider:
- They don't own the business, so they won't be the ones making a large profit when (or if) you sell it
- They have their own career paths and personal goals
- They may only work in your business for a short period of time
- They may not have financial stability and need regular pay-cheques to get by
- They have monthly costs such as rent, food and utility bills to consider
- No matter how much they love your business, they are still working for you with the goal of getting paid
So it's clear that one of the biggest motivators for your employees is money. Not money at an unspecified date in the future – but money at regular and set points every month. That's why an efficient payroll process is vital for your employees.
Give your employees what they need
Nothing disrupts working life and staff morale like an unreliable payment system. If your employees are paid regularly, on time and with all administration completed properly, they will be happier and more efficient workers. So if you want your business to run smoothly, you need a payroll accounting system that looks after them:
- Automated direct payments: Peace of mind comes from knowing that a bank deposit will be made on the day it was promised. So don't keep your employees waiting for their salary. Direct automated payments will ensure that there are no delays.
- Fast updates to tax codes: Your employees' tax codes can change. Sometimes that's due to new legislation affecting their income tax band. Sometimes it's due to changes in personal circumstances, like marriage or parenthood. Your system should update tax codes quickly and easily.
- Accurate tax information: Most employees have income tax deducted from their salary before they receive it. That's your job as employer, and it's important to get it right. If you deduct too much, your employees may not have enough money left to live on. If you deduct too little, they may have to make a lump sum payment to the tax office at the end of the year, which could cause them financial hardship. As well as the moral requirement to get these deductions right, there's also a legal one.
- Let your employees help: As your business grows you may have dozens of employees or more. Each time they move home or change their personal status, that information must be updated in your system. It makes sense to give employees limited access to their own information, so that they can make changes directly. This should cut down on mistakes, and you can set it up so that any changed information is checked before it's updated.
- Manage holiday accounting: Your payroll system should keep track of the number of days each year that an employee has been on leave, along with their total leave allowance and any carry-over from the previous year. You can improve workflow efficiency by letting your employees apply for leave directly within the system. Their applications can then be approved or denied by their manager, without excessive paperwork.
- Process expenses and travel claims quickly: These are costs that are incurred by your employees but chargeable to your business. Make sure your employees are reimbursed as quickly as possible – this saves any potential stress.
- Make regular healthcare, pension or superannuation contributions: These payments may not be very large, but they add up over time – and so do any errors. Good payroll accounting software will take care of these payments automatically. Benefits, overtime and sickness pay should also be handled quickly and efficiently if you want to keep your employees happy.
Choosing the right payroll software
You need a system that can handle the points listed above. But good payroll accounting software can do more than that:
- Simplify tax paperwork: Tax paperwork is unavoidable if you run a business. Good software will make it as simple as possible, by linking into your accounts and retrieving all the necessary information at once. Then all you need to do is check it and submit it – usually online.
- Take care of new employees and ex-employees: A few clicks should be all it takes to handle paperwork and payments for employees leaving your business. It'll be a little more complex when new people join, but good payroll software will take you through the process easily.
- Reduce IT costs: The best software is one that you don't have to worry about. No in-house support costs, no expensive upgrades and little to no downtime. By using online payroll accounting software (sometimes called cloud payroll software) you can stop worrying about IT issues, because it's all taken care of remotely.
- Give you access from anywhere: Online payroll accounting means your data is stored securely and you can access it online, from wherever you are. So you don't need to be in the office to approve payments or check the monthly payroll figures. You can do that from anywhere, at any time, using a laptop, tablet or smartphone.
- Stay up to date: Tax laws change, income tax rates vary, and employee benefits law isn't set in stone. Quality payroll software can make life easier for you by incorporating changes when they occur, and rolling them out to your employees.
Take your employees' needs into account
When it comes to payroll, what's good for your employees is also good for you. In recent years there have been several examples of payroll software going wrong – and the effect on employee morale can be devastating. Some organisations never fully recover.
So don't underestimate the importance of payroll to your employees. By choosing the right payroll accounting software you can make sure your employees are all paid the right amount of money at the right time.
This will help keep them happy and let them concentrate on doing their work. And that will help your business to grow and thrive.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.