01/10/2024
7 Minutes Read
As a small business owner, you might initially believe that payroll processing is a straightforward task. After all, with only a few employees, it seems manageable within a few days.
However, you'll soon discover that the reality is different. Payroll processing can consume a significant amount of time for your HR team, and errors can occur, affecting payouts and leading to costly revisions, re-auditing, and other issues.
Payroll management, whether for a small or large business, is not a simple endeavour until you find the right HR payroll software. In this blog, we guide you through the main payroll issues small businesses experience, compare HR payroll software to outsourcing, and share five important payroll management tips.
What are some major challenges that small businesses in India face in payroll processing?
India, being the largest country by population, hosts the largest workforce. It is a union of 28 states and 8 union territories. Each state has its own labour laws and tax systems besides the central government regime which is commonly followed across. So, practically there is a dual tax system in place.
Therefore when processing payroll for the employees, companies are required not just to comply with the federal mandate but must also take into consideration state-specific regulations. This variability in the tax system mostly affects small businesses for the fact that they don’t have a dedicated team for payroll processing. Most of the time, it is a few HR staff who are burdened with all these additional compliance management challenges.
Another key challenge for small businesses in India is the budget constraints. Unlike large corporations which often have dedicated payroll teams or have highly advanced HR payroll software to automate the processes, small businesses lack the financial capacity to have either of them. While there are free payroll software options, they are not effective in automating all functions. Additionally, there is no guarantee that these free systems will safeguard important company or employee data while handling payroll records.
HR Payroll Software Vs Payroll Outsourcing - Which Is Better For Small Businesses?
Payroll management is done manually in several small businesses. As you can see, it can lead to many errors and compliance issues and take your HR teams at least a week to complete it. Two popular solutions to payroll management challenges are – 1) HR payroll software and 2) Payroll outsourcing. Which is better and more cost-effective for small businesses? To know it, you need to know the differences first. The following chart will help you understand it better.
| Comparison Criteria | HR Payroll Software | Payroll Outsourcing |
|---|---|---|
| Control over the process | Clients enjoy total control over their payroll processes. | As the processes are entirely handled by third-party providers, clients have limited control over the processes. |
| Initial Setup Cost | Clients pay one-time or subscription-based software fees. | Cost is recurring and is based on service package or employee count. |
| Customization Options | Services are customisable as per company-specific needs. | Standardized services with limited customization options. |
| Data Security | Comes with advanced encryption for enhanced data protection. In-house security measures are recommended though. | Relies on third-party security measures and protocols for data protection. |
| Compliance | The software provider updates the system to ensure compliance with updates in tax and labour laws. | Service providers usually ensure compliance, but can be affected by potential delays in some cases. |
| Scalability | Modern payroll management software solutions are easily scalable for growing businesses. | Clients may be required to enter additional service agreements with the service provider as the business grows. |
| Efficiency | Highly efficient as it can automate all payroll tasks. Staff may require some training initially to get started though. | In terms of saving HR time, it is efficient as the entire payroll task is outsourced. |
| Time Investment | Requires setup and ongoing maintenance. | Saves time, but coordination with the provider is necessary. |
| Customer Support | Software support is offered via customer service channels. | Clients receive full-service support from the service provider. |
| Real-time Reporting | Clients receive quick and real-time updates on trends and can generate custom reports. | Clients receive reports or insights at fixed intervals based on the agreements with the service provider. |
Considering these factors, HR payroll software for small businesses is the right option. Small and medium businesses have lower budgets for operational expenses. For one, many of these companies wouldn’t even have factored in payroll processing as an additional expenditure, assuming to process it manually. When their limited HR professionals engage in payroll processing, it often ends up costing more than using a dedicated HR payroll software or outsourcing payroll.
Five Essential Payroll Management Tips for Small Business
Is using the appropriate payroll software for small businesses enough? Does it ensure that payroll goes smoothly and there are no other challenges to worry about? Here are five basic payroll management tips for small businesses.
Establish a clear payroll policy
The efficiency of payroll in a business organization is closely linked to its own payroll policy. Businesses can choose to have a vague policy vs a clear one. When you have a vague one, it negatively affects the processes and can result in delays. When you set the payroll policy, ensure that the following aspects are carefully addressed:
- Pay periods – whether the payroll should be run monthly, weekly or bi-weekly.
- Overtime – the criteria for overtime pay.
- Tax deductions – how much is deducted from the employee’s salaries for various forms of taxes – professional tax, social security tax etc.
- Time off – how many leaves are accepted in a pay cycle.
Choose the right HR payroll software
Businesses need to use the right HR payroll software for their payroll processing. Choosing the software should be done after factoring in various considerations like its efficiency, budget, compatibility with a business's unique requirements etc. It is also important to verify whether the payroll software you choose is capable of integrating with other software applications you use in your employee management, for instance, attendance, leave and shift solutions. The real time synchronization of data across your existing systems will ensure that you need to put less effort into moving the data between.
Deposit withheld taxes without delays
A common payroll mistake that several businesses, especially small and medium businesses make is delayed depositing of taxes that have been withheld from their employees. This usually happens when the payroll processing is done manually. With manual procedures, there is a high chance of overlooking important aspects like tax submission. Delayed depositing of government taxes will cause penalties. Additionally, it can cause the organizations to get blacklisted for tax compliance faults. So, it is highly recommended to automate your payroll processes so you don’t have to fear overlooking it.
Keep your employees up-to-date on your payroll policy and procedure
The primary focus in payroll processing is your employees. Therefore, keeping them informed about your company's payroll policies, changes, and procedures is crucial. By allowing employees to handle certain payroll inputs, such as timesheets or accessing pay stubs independently, you can make the process easier and reduce the administrative burden. An advanced payroll management software comes integrated with a service portal letting employees handle all of these basic functions.
Implement robust security protocol to safeguard payroll data
Reports of data breaches targeting business organizations reveal that in most cases these attacks resulted in leaking or compromising employees’ sensitive details like their social security number and bank details. These details are essential to be protected by all means and if safeguarding them means switching to a more reliable payroll management software solution, don’t hesitate to do it at the earliest.
Conclusion
Proper payroll management is an inevitable need for small businesses just as how important it is for large enterprises. By sticking to these five essential tips mentioned in this blog, you can bring more accuracy and efficiency to your payroll processing. Remember, the choice of the right HR payroll software comes at the forefront of your organization’s success and efficiency in payroll management.
It can significantly influence how quickly you can adapt to changes in tax, regulations or any other advancements taking place in the payroll process. Gaining a competitive edge in business not only involves having the best offerings in the market but also in how effectively you manage your workforce, with payroll playing a crucial role.
