As a small business owner, you do it all. One critical task you’ll handle is paying your workers, and it’s not always as simple as it looks!
You have to consider which payment method, the frequency of your payrolls, and how much to pay them - amongst other factors. Much of this directly influences your workers’ happiness and willingness to work for you, which can mean life or death for your company.
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. We know that payroll management may seem straightforward at first, but as your business grows, complexities can arise, making it challenging to handle in-house.
Once you reach that point, you may want to work with a payroll service, but for now, let’s go over the basics of the best ways to pay your workers:
- Should I do my own payroll or use a payroll service?
- What is the best employee payment method? Checks, direct deposit, pay cards, or another method?
- Should my employees be salaried or paid hourly? Are they exempt or non-exempt?
- How often should I pay my employees?
- How much should I pay my employees?
DIY Payroll Vs. Payroll Service
Should you do your payroll in-house? For startups, this can look like an administrative employee or the owner maintaining a spreadsheet in their free time. For very established, large companies, this can look like hiring a dedicated payroll specialist - or even an entire team of them.
If you’re in the middle - not just getting started, but also not a large business - you might be a great fit for a payroll service. A payroll service can offer great peace of mind and free up time in exchange for relatively low fees. If this option interests you, don’t forget to compare local and national payroll services!
Best Payment Method
There are various payment delivery methods that a small business can consider, but some are more popular than others. Nowadays, direct deposit is the norm - but let’s look at some other commonly-used options.
Direct Deposit
A favorite method of employees, this eliminates the need for your employee to go to the bank to deposit their pay. It’s about as simple and safe as it gets for both you and your workers (if you avoid falling for direct deposit fraud), but it may require you to work ahead of time due to processing times. It may also cost you slightly more than other pay options.
Paper Checks
This is easily a second favorite. While it may require a trip to the bank if your employee doesn’t use mobile banking, it’s easier for you as an employer. It leaves a paper trail, but paper is also a risk for being lost or stolen. Ultimately, this option is well-liked by newer or smaller businesses, but you may prefer direct deposit as you grow.
Pay Cards
This is a less-used option nowadays, but it’s not completely obsolete. A pay card is essentially a debit card used solely for you to deposit an employee’s pay. It is also a great option for workers who don’t have bank accounts. You still need to consider some downsides for employees, though, such as high fees and losing all funds on the card if it is lost or stolen.
Other Payment Methods
There are additional options, such as cash, PayPal, and mobile payments (like ApplePay). However, you need to make sure that however you pay your workers will keep them, yourself, your business, and the IRS happy - so choose an alternative payment method at your own risk.
Salary Vs. Hourly
When considering salary or hourly pay for your workers, the clearest way to decide is to consider whether your employee is exempt or non-exempt.
Exempt employees are not eligible for overtime pay and can be paid a salary (which can keep things simple), whereas non-exempt employees are covered under the Federal FLSA (Fair Labor Standards Act) and must receive a minimum hourly rate and premium pay for overtime hours. It’s a good idea to track hours of salaried employees regardless - but not required provided you classify your workers correctly!
The other thing to help you decide whether they should be salaried or hourly is to look at how similar roles in similar industries are being paid.
Best Pay Frequency
Should you pay your workers weekly, monthly, or somewhere in between? When deciding, consider both your business and your employees. You may find it beneficial to ask your employees if they have any preferences, and don’t switch their pay frequency without asking them first.
You also need to make sure your pay frequency follows labor laws and doesn’t hurt your business’s cash flow. The following are the most common pay frequencies.
Weekly Payroll
Many employees prefer to get paid more often. This is especially beneficial to workers who make lower wages. However, this requires a bit of administrative work. If you use a payroll service, this option could result in higher fees per pay period since payroll is run weekly.
Bi-Weekly Payroll
This is run every two weeks. It is a very popular option, and it balances stability with employees’ pay and reduces your administrative work or payroll service fee.
Semi-Monthly Payroll
Semi-monthly payroll is very similar to bi-weekly payroll, except that it lands on specific dates of each month (ex. The 15th and the last date of each month). Many businesses use this frequency to simplify their bookkeeping since each month can have exactly two full pay periods.
Monthly Payroll
Monthly pay usually falls on the same date each month (ex. The last business day of each month). This is the simplest option as far as payroll administrative work goes, but employees find monthly pay difficult to match up with their bills and don’t prefer this option.
How Much to Pay an Employee
Much like choosing between salary or hourly pay, it’s best to look to similar roles in similar industries to determine your workers’ pay rates. You also need to consider the cost of living in your local area - and the local minimum wage, of course. You need to make sure you’re following the law.
If you pay your employees properly, there are also many benefits to you. You can avoid the hassles and costs associated with turnover, such as hiring and training a new worker. You can also motivate workers to work harder with extra incentives, if you choose.
Pay Your Employees the Best Way!
Paying small business employees can seem simple, but as your business grows, your payroll management can become too complex or time-consuming to handle in-house.
Knowing when to transition to an outsourced payroll service is key, but until then, you should now have the tools to determine the best way to pay your employees. Ultimately, choosing the right options for your payment method, pay frequency, and amount and type of pay will benefit your employees and your business.
If you’re interested in an outsourced payroll service, why not consider CSI Accounting & Payroll? After all, we’ve worked with small businesses for over 50 years. To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about the variables that make up a payroll fee:
