Suitless has been running payroll for small to medium-sized businesses for a while now. And in doing so, we’ve learned a lot about how to avoid some of the common payroll “traps” that can throw off a payroll, confuse an employee, or frustrate a business leader. We’ve decided to share our 13 step payroll process for making sure that a payroll is “airtight.” By understanding this process, and even using it as a checklist, you can get your payroll process down to a science (lab coat and beaker not included🧪).
1. Documentation: Any payroll that you run should have documentation to substantiate what you are doing. We always tell our team members and our clients that we want to be able to prove that we didn’t come up with the payroll change on our own – and we do that by keeping supporting documentation on file. We want to be able to quickly answer questions about the payroll six, twelve, or twenty-four months after we’ve run it.
2. New Hires: The payroll processor should begin by determining whether any new hires have been added during the pay cycle and confirming that they have been added to the system correctly. You’ll want to make sure that the correct withholdings have been set up (see below), that the correct deductions are in place, and that correct direct deposit information is on file. New hires also deserve “kid gloves” when it comes to their paycheck – so check in with them after they start to make sure their pay looks okay, that they understand their paystub, and that they don’t have any questions.
3. Terminations: Your payroll cycle may or may not have terminations during the pay period. Of course, you’ll want to make sure that you have the correct termination information on file, including final date of employment and any additional payment(s) owed (such as PTO, bonuses, reimbursements, etc.). If you provide separation agreements employees you’ll need to make sure that that payment is processed appropriately and accurately once an agreement is been signed. Other post-termination steps may involve COBRA administration, converting the employee to a contractor, or getting equipment back.
4. Raises/Promotions: Raises and promotions are commonplace. But do you have all of the documentation to back up these changes. The right documentation will include effective dates, old and new rates or amounts, calculations; and on the HR side, titles, additional goals, expectations, and responsibilities.
5. Reviewing Hours: Do you have any part-time employees? If so, you’ll need to make sure that you’re correctly importing or entering their work hours. You’ll need to be cognizant of wage and hour laws (overtime, minimum wage, rest and meal breaks, travel, etc.) whenever you’re paying Non-Exempt employees.
6. Reimbursements: If an employee is due any reimbursements, you will need to either import those amounts or enter them into the correct field in the payroll system. Reimbursements should never be added to gross wages. It’s important that you have documentation for any reimbursements that you’re going to be issuing (since the employee is receiving these amounts before taxes).
7. Withholdings: This one is critical. Payroll administrators should be entering withholdings, but employees should be encouraged to review their withholdings and pay stubs. This includes making sure that their filing status is correct, the number of withholdings is correct, that the correct taxes are being paid to their correct state and/or municipality. Garnishments are another item to keep an eye out for.
8. Bonuses: You’ll want to confirm as to whether the pay period has any bonuses that need to be paid out. You’ll also want to check to see whether the bonus needs to be prorated, adjusted, or whether there are terms related to the bonus (sign on, retention, milestone, etc.).
9. Commissions: Do you have any salespeople that are paid via commissions? This is an important one that should not be glossed over. Commissions can be paid in the same paycheck as wages, or they can be paid separately. If you’re using calculations to determine commissions you’ll also want to double check these.
10. Benefits: It’s important to make sure benefits withholding amounts are correct and being withheld correctly. These withholdings should be reflected correctly and payroll administrators should take the extra step to make sure that the correct amount lines up with the correct tier of coverage and the correct plan (if the company has multiple plans).
11. Contractor Payments: Are there any contractor payments that need to be paid out this cycle? Smaller companies will often pay contractors around the same time that they pay payroll for the first half of the month. This is maintain an awareness of cash flow, timing, and to confirm invoices received from Contractors for the prior month.
12. Client Summary: We send our clients a summary of all of the items above as well as the amounts of adjustment. We also provide an overview of the gross and net amounts for both the employer and employees (along with a tax breakdown). If you’re doing this internally you may want to send your summary to the CFO, CEO, your accountant, or someone else in the company that has payroll access.
13. Post-Payroll Actions: Sometimes there are actions that need to happen after a payroll has already been run. This might include making changes in a payroll or HR system, getting in a payment that was received after payroll had already been run, or making changes for the next pay cycle.
We use this system as our payroll checklist whenever we run a payroll.
If you you’re a business owner who is running payroll, sticking to this checklist will help you minimize the possibility of errors and run a more solid payroll. At Suitless, we help our clients manage payroll, HR, bookkeeping – all with an eye towards compliance. Reach out here to learn more about how Suitless can simplify your workday.