5 Tips for Managing Payroll Effectively

How you manage your payroll process can reflect your business’s effectiveness and employees’ satisfaction.

You might be in a situation where your business snowballs and you find it hard to keep your payroll operations running smoothly, or you have just started with a new business and want to get this task right from the very beginning.

Either way, this article is for you. The following five tips will help you manage your payroll workflow effectively and keep your business running like a well-oiled machine.

  1. Set a payroll calendar
  2. Choose the right software
  3. Be transparent
  4. Keep your payroll process well-documented
  5. Consider outsourcing

1. Set a Payroll Calendar

A payroll calendar is an excellent tool for organizing employees’ timesheets and running the overall payroll process.

When you engage in setting your payroll calendar, try following these five steps:

  1. Decide on the pay frequency
  2. Pay attention to holidays
  3. Set the final dates for the payroll process (timesheet collecting, running payroll, the employee pays)
  4. Give your employees access to the payroll calendar
  5. Set reminders for collecting timesheets and running payroll

2. Choose the Right Software

Payroll software is an excellent tool for automating your payroll process and simplifying this challenging and time-consuming task. There are many software solutions in the market, but not every software is the best solution for every business.
To help you find the best one for your payroll workflow, we have created a list of the three best software currently on the market.


This software best suits small to midsize companies. It offers features like direct deposits or checks to pay your employees, automatically tracking all federal, state, and local taxes, etc.

It also provides tools such as an employer tax calculator, burn rate calculator, and new hire checklist.

Their starting price is $45 per month. They also have more advanced options that cost more but come with more tools and better customer support.

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Onpay is user-friendly payroll software ideal for small businesses. It offers intuitive payroll in the cloud, automated taxes, built-in HR and benefits, and expert support. They also provide a free setup for all their users.

The primary option will cost you $36, but the price can be much higher depending on the number of employees and desired features.


ADP is one of the most popular software solutions on the market. It can support payroll tasks of companies of all sizes. As a result, ADP is regarded as a professional employer organization.

Their primary option covers full-service payroll, reporting, direct deposits, and a self-service employee portal.

Since they don’t publish their pricing plans, you would have to fill out a form and get a custom offer for your business.

When choosing the software for your payroll process, make sure you opt for the one that best suits your needs and falls within your budget.

3. Be Transparent

Transparency in your payroll process will help you overcome obstacles, such as misunderstandings between employees in different sectors, unpaid taxes, etc.

  • Your employees should be informed of the following:
  • The way the payroll process works
  • Employees classification
  • The factors that determine their salaries
  • The reporting responsibilities
  • Company’s methods for handling any payroll mistakes that may occur
  • How the vacation pay, wages, and promotions are calculated

4. Keep Your Payroll Process Well-Documented

A well-documented payroll process will allow you to analyze your payroll system and identify any weak spots. It will also help you be prepared for a payroll audit.

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Here is the list of records you should keep in case you get audited by the IRS:

  • Names and addresses of all your employees
  • Your employees’ Social Security numbers
  • Information about workweek – start and end date
  • Total hours worked per day
  • Total hours worked per month
  • How each employee is paid – hourly, weekly, fixed salary, etc.
  • Pay rate
  • Overtime earnings
  • Addition to wages
  • Deductions from wages
  • Total wages paid for each period
  • Payment dates
  • Forms W-2, W-4, 941, and 944
  • Records of benefits
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When we know that the IRS assessed around $13 billion in civil penalties in 2019, it becomes clear why keeping your payroll records well-documented for your business sustainability.

5. Consider Outsourcing

If you are short on qualified personnel or feel that your payroll team can’t keep up with the ever-changing rules and regulations, you should consider outsourcing this complex task to one of the best payroll companies.

  • Cost-saving – outsourcing can be more cost-effective than having an in-house payroll department. This is especially true if your business is constantly growing and you are in a situation where you have to hire more staff.
  • Time-saving – when outsourcing, you won’t have to learn how to use new software or waste your time on finding accurate local legal information. You would be relieved of stress knowing that your payroll process is in the hands of professionals.
  • Fewer payroll-related mistakes – it is easier for payroll companies to follow the latest tax laws and ensure the correct payment process. After all, their team of professionals is trained to do this.
  • Data security – normally, payroll service providers use cloud-based services for keeping employee information. This allows them to ensure maximum data security and prevent any attempt at data exploitation.

If you are reluctant about outsourcing any segment of your business, try researching the most asked questions about outsourcing if you wish to understand this concept in more detail.


Effective payroll management requires careful planning. First, you must set a payroll calendar and choose the software solution that best fits your needs.

Be transparent about your payroll process and follow the rules and regulations to avoid potential misunderstandings and penalties.

If it seems like an overwhelming task for your in-house team, you can always outsource it to a trusted payroll service provider.