Small Business Guides
Six ways to optimise payroll for the holidays
8 min read
Managing payroll is an important part of running your business – especially during the holidays. Your employees may get bonuses or be paid overtime, or you may need to take on extra staff to keep up with demand. Find out how to manage your payroll properly and avoid unexpected surprises.
1. Account for the right employee deductions
Some aspects of payroll management can be complicated, including managing payroll deductions. Most business owners understand that deductions are necessary, but calculating them can involve many variables.
You need to take special care that the right deductions are made and transferred to the right government agency at the right time. If you don’t calculate the right employee deductions you could be breaking the law.
It’s vital that your payroll software works out the right deductions to make over the holidays, and it’s equally important to keep your staff informed.
Common payroll deductions can be automated with the right payroll software. This includes things like Medicare and Social Security payments.
Showing employees’ deduction information on their paystubs (printed or electronic) can reduce questions and keep your employees happy. It also means you can show your employees how much you as the employer contribute for them. Without showing this information, your employees may not know the value of these extra benefits.
2. Account for overtime
Overtime is extra pay for hours worked by your employees over the amount they would normally work. This is often forty hours per week if they are full-time employees, but it depends on factors like the country you’re based in and local employment law.
Employee overtime can be a big additional cost in your operating expenses over the holidays. So make sure you check that your overtime payments will be covered by a corresponding increase in sales.
- How much overtime does your business currently incur?
- What is the total cost of the overtime?
- Where does the overtime come from and why does it happen?
- When does the overtime occur?
- Is there a trend, or is it seasonal?
Having the right data is critical to managing your costs. It’s worth spending the time and effort to collect and analyze it.
Make sure you understand the rules and regulations for overtime pay and that your payroll system can cope with them. Talk to your tax agent, payroll specialist or accountant if you need more advice.
3. Account for the holidays with well-designed payroll software
If your staff have to submit an application by email every time they need to take leave or go on holiday, it’s time to reconsider your approach. Wouldn’t the time you spend manually processing, approving and checking leave applications be better spent running your business? And there’s also the time you spend fixing mistakes caused by data entry or human error to take into account.
Even if you’re already using payroll software, you may not be getting the most value from it. Ask yourself the following questions:
- Does your software know when to deduct hours if a full-time employee has worked less than 40 hours because of a holiday?
- Can you quickly and easily produce reports showing what holiday pay has been paid and when? You may asked to provide this information by government agencies, unions, or other relevant compliance bodies.
- Do your employee paystubs or notifications clearly show when holiday time has been paid?
- If you provide holiday pay for some employees but not others, can your system identify and group them?
- Is it easy to define standard or flexible holiday pay rules?
The right payroll software will automatically generate standard holidays based on your profile, circumstances and employee information. It can give you the flexibility to manually enter holidays or override auto-generated holidays.
If the day you normally pay an employee falls on a holiday, make sure you indicate this in your system and let your employees know when they’ll be paid. If you want to pay them before the holiday, adjust the payment and submission dates to allow time for the money to be paid. Check public holiday dates online if you’re not sure when they occur.
Employee overtime can quickly add up. It’s a good idea to get an accountant or bookkeeper to take a look at your overtime costs.
4. Track all time off for new and existing employees
With the right payroll system, it’s easy to track your employees’ vacations or sick leave.
Smart payroll software makes it simple for your staff to submit their holiday or leave applications and receive notifications. The best software will be able to automatically accrue (add up), deduct and manage all sorts of leave including:
- holiday leave
- annual leave
- sick leave
- bereavement leave
- parental or maternity leave.
Well-designed payroll software needs to allow for unlimited and flexible earning amounts, deductions and reimbursements. This is regardless of whether your employees are full-time or part-time.
Have you considered the benefits of customized pay calendars for both your business and your staff? In addition to you being able to view their leave history and balances, and submitting requests, your employees will be able to complete these tasks online – from anywhere.
5. Track holiday bonuses
Bonuses are often given out around the holidays. If you plan to give your employees bonuses, you need to consider the tax implications – for both full-time and part-time employees. Your government tax agency will specify the rate at which bonuses must be taxed. In your payroll system, you might have to manually adjust these rates for your employees depending on your business.
Make sure you follow federal and state regulations. Always contact your accountant or bookkeeper if you need more clarification about holiday bonus payments and deductions.
6. Manage salaries and taxes
It’s critical you to stay up-to-date with the rules and regulations that affect how to pay your employees. The potential cost to you if you fail to meet deadlines or miss filing certain forms can be high, especially if you’re a smaller business. Payroll tax filing is a business necessity, but it shouldn’t be costly or difficult.
Make it an ongoing process to review your payroll system so that you follow federal and state regulations. By being informed and up-to-date, your business will avoid costly mistakes and delays.
Since the holidays can be busy, you need to make sure your payroll system can:
- calculate and pay salaries and taxes
- handle electronic filings
- handle deposits
- stay legally compliant.
Use payroll software that works with you – not against you
If your business has employees, one of the most important tasks is to make sure they are paid accurately and on time. Online payroll software reduces the potential for the human error involved in paying employees and keeps you on the right side of government requirements.
Optimizing your payroll makes it easier to monitor the progress of your business, prepare your financial statements, keep track of deductible expenses, and prepare your tax returns. It will also reduce your stress if you ever get audited.
The payroll tools you use before, during and after the holidays can affect the profitability of your business. So it pays to be prepared as far in advance as possible.