How Important is Where Your Money Comes From?

startup-593296_1280Now that you know where your money goes, it's time for another important question. Do you know where your money is coming from each month? How much and how often you get paid depends on your employer's payroll solution.

If you are working for a mid-sized to large corporation, they have probably worked out a fair system to pay their employees. But you may be getting paid less than market value or less frequently if you are working for a small business owner.

Most people who start their own small business often underestimate the complexity of paying people according to state requirements. In fact, it takes quite a bit of research and experience for your employer to figure out how to pay people each month.

Unfortunately, most employees believe that getting paid is a simple matter. It's just about keeping track of hours and cutting a check. But there is a lot that goes into how employees get paid. If you're working for a small business, the owner might be overwhelmed by payroll. This results in you not getting paid properly. Worse still, he or she might not be ready to make the leap to hire a payroll service.

Should Your Employer Hire A Payroll Service?

When should a company invest in a payroll service?

It's only advisable for a small business to do their own payroll if they are well versed in it. The owner should either have an accounting background or hire a full-time accountant.

Why is an accounting background so important for a small business?

It's because the owner or staff member has to know how to research all the tax laws. He or she also has to have a simple payroll process to keep track of a variety of deadlines.

Someone with only a bookkeeping background or trying to figure things out with an accounting software will usually mess things up.

There is a good reason for this high rate of error. Think about it. Only someone who is an accountant can hope to competently file quarterly reports, withhold employee taxes, pay withholding to governmental agencies, issue W-2 forms at the end of the year, make summary filings at the end of the year, manage employees' contributions for health and pension plans, and cope with state disability, unemployment and assessing family leave issues.

Besides keeping track of a lot of legal requirements, it requires competence to pay employees correctly.

Incorrect Payroll Frequency

The place where employers often mess up is payroll frequencies. By doing it wrong, many errors are made. In the long run, small business owners can face many stiff penalties if caught.

Employers have the following options when it comes to figuring out a payment schedule:

  • Weekly. This pays employees 52 times in a year.
  • Biweekly. This pays employees 26 times in a year.
  • Semimonthly. This pays employees 24 times in a year.
  • Monthly. This pays employees 12 times in a year.

This pay frequency is not simply a matter of owner's choosing the most convenient option for their cash flow. Instead, it is often established by the state for the class of employee. While employers do have the option to pay their people more frequently, they will get into serious trouble with the labor department if they pay them less.

4 Benefits of Outsourcing Payment Processing

ADP Business Payment Solutions suggests a more efficient payroll process results in the following four benefits:

  1. A lower risk of Health Care Reform compliance issues and penalties
  2. Using experts to figure out employment-related Tax and Compliance matters
  3. A huge savings in time, effort and money normally allocated to payroll administration
  4. Getting employees paid the right amount at the right time

What Should You Do?

If you are an employee and suspect that you are not getting paid correctly, then you should talk to your employer to get things straightened out. If the employer knows what he is doing, then he can explain his or her steps. But if he or she appears lost, without a clear idea of what they are doing, then it may be in your best interests to suggest that they hire an outside payment processing company.

But what if you are the employer and you're in charge of payroll, but you have no idea how to do it properly? Then your best move is to outsource this to an outside company. Messing up on payment amounts or schedules can get you into trouble with labor laws or tax authorities. It's a shame to ruin your business because you are better at sales and organizational management than at payment processing. You don't have to do everything yourself. There are plenty of affordable solutions you can use.


Recommended by MyFinance

One thought on “How Important is Where Your Money Comes From?

Comments are closed.