Payroll is a big deal. It’s a lifeline for employees, and it’s the largest expense for a company. The expenses directly tied to employee compensation are vast:
- Regular and overtime wages
- Benefit days such as vacation and sick time
- Severance pay
- Fringe benefits
- Health benefits
These don’t include mandatory liabilities like Social Security and Medicare taxes, federal and state unemployment insurance or additional taxes state and local governments may require.
When all is said and done, wages can account for 60 percent to 80 percent of many small businesses revenue. If you’re not careful, payroll mistakes can cut into small business’s revenue even more. Here are five tips for saving money on payroll.
1. If you handle payroll internally, consider outsourcing
Are you spending too much time and internal resources on payroll? Payroll can be time-consuming and expensive. If you have a small or medium-sized business, you might not have the ability to dedicate the appropriate resources to the intricacies of payroll, either. It’s easy to miss deadlines, forget about new regulations, or make errors when calculating more technical aspects of payroll like items exemptions from payroll taxes.
By outsourcing, you can help
- Mitigate the risk of payroll
- Eliminate penalties
- Complete payroll more cost-effectively
2. Switch frequency of payroll
Stellar Living, a company that uses DailyPay, recently learned how changes in payroll schedule can mean the difference of thousands of dollars.
Stellar Living knew their current payroll schedule was a major pain point for their employees. They are on a semi-monthly schedule, so employees are paid on the 10th and 25th of each month. This process poorly aligns with bills due on the 1st or 15th of the month.
Stellar Living inquired about the cost to switch from a semi-weekly pay schedule to a weekly pay schedule. Running 52 payroll activities a year, rather than 24, would more than double the price of their current payroll service. Stellar Living saved thousands of dollars by adding daily payment technology from DailyPay where employees can tap into earned wages whenever they’d like. DailyPay finances the daily payment advances and is reimbursed by the company on payday, which means that you don’t have to disrupt your payroll cycle.
In most cases, processing payroll bi-weekly is the cheapest and most simple way to process, regardless of whether you are running your payroll in-house or using an outsourced payroll vendor.
3. Improve direct deposit enrollment
Do you know the true cost of a paper check? It costs a business up to $2 to cut and process a hard-copy check versus 35 cents or less for direct deposits. If you can eliminate checks from payroll, you could save thousands of dollars.
Companies who offer perks like DailyPay see an increased amount of direct deposit enrollment because the software requires it. Nicole Lehman from The Maids franchise noted that when her company signed on to DailyPay, "I had three people that were not on direct deposit get set up with banking information just so they could use the DailyPay service."
If you have “unbankable” employees, or employees who are unable to get a bank account for whatever reason, try providing resources like pre-paid debit card companies as an alternative to paper checks.
4. Use a timekeeping system
Companies who use paper timesheets or employee generated electronic spreadsheets to calculate an employee’s time might be surprised at the amount of money they would save by investing in a timekeeping system. It is much easier to add a few minutes here or there to a paper timesheet or electronic spreadsheet than an actual time clock.
These systems often integrate easily into your current payroll system, resulting in fewer errors in payroll processing as well.
5. Improve employee retention
In industries that primarily pay minimum wages, the percentage of wage in relation to a company's overall revenue may seem low, but with high rates of employee turnover, this isn’t actually the case.
Low wages may be great for business owners, but could cultivate higher amounts of turnover. Each time an employee quits, you lose time and money. This money gets added to the total cost of payroll, which includes time spent onboarding and offboarding employees, setting up banking or checking account information, and allotting accurate tax deductions for each employee. By improving employee retention, you can save money on payroll.
Find how DailyPay can improve your payroll process, and save money for your bottom-line.