Improving Your Payroll Operations
Payroll refers to the records kept taking account of employees and payments for their services i.e., salaries and remunerations. Salaries are one of the most important operating costs in any small business. It is a compulsory payment made regularly to staff and people engaged by the entity.
Payroll Operations are very important as it forms part of the accounting records of the entity and it also helps to plan how to channel its funds. A successful business should be able to account for all the entitlements paid to the employees, therefore, this article will give insights on how to improve your payroll operations and the likely benefits. It is important for small businesses to regularly review their payroll activities, this will help to check for overstaffing.
Maintain adequate information about employees and all those engaged by the firm in any capacity. This information is kept in a personnel file and is maintained by the human resources manager. Every entity must keep records of each employee and their contract of employment. This will help to monitor amounts due to each person and to review the contract when there are changes in the terms. Monitoring staff turnover is another benefit of keeping records, staff turnover shows the number of workers who leave the business and are replaced by new entrants. A high staff turnover is bad for small businesses as they will constantly incur recruitment costs.
Make deductions- Payroll deductions are portions withheld from an employee’s total earnings. This makes the difference between gross pay and net pay. It is used for purposes like income tax, health insurance, gratuity, pension, etc. Employers of Labour are saddled with the responsibility of filing these returns on behalf of the workers thereby easing the burden. When employees are aware that all necessary deductions are made and that their earnings are not being mismanaged, it gives them an assurance which in the long run will improve performance.
Follow Tax Policies- Tax authorities have laws guiding payroll tax remittances. Payroll tax is an income tax deduction made by the business owner and remitted to the government on behalf of the employee. It is important to be familiar with these tax laws as it would guide the computation of the payroll to comply with these requirements. In Nigeria, the payroll tax rate progresses from 7% to 24% depending on the amount of taxable income. Tax policies also spell out the adjustments to be made to the gross income before taxes are computed, it is advisable for owners of SMEs to be conversant with the provisions to ensure a hitch-free filing. Failure to adhere to tax policies can lead to additional tax liabilities and penalties. It can also create problems for the employee in the future.
Establish a good payroll policy- This policy contains information on how the process is conducted. Employees should be well informed on how basic salaries are determined, other emoluments entitled, bonuses, deductions, and how tax is computed. The policy contains a pay schedule which states the frequency of payment (this may be weekly, bi-weekly, monthly) and the rate used to compute the salary (if there is no fixed amount). A payroll policy is good when it can be easily comprehended by employees.
Conduct Regular Audit- Payroll Audit is a periodic examination of the entire payroll system regularly. This helps to point out loopholes and inaccuracies in the manner of conducting the system. A payroll audit is included in the annual external audit process and inspects key areas such as rates applied, tax withholdings, and deductions made. Small businesses can do this internally by someone other than who does the payroll computations to avoid a self-review threat. This independent party can ascertain that the process is error-free and compliant with regulations.
SMEs would benefit massively from improved payroll operations as it will reduce administrative costs in the long run, therefore boosting performance.
