How to Control Payroll Costs

by Stephanie Taylor Christensen on January 10, 2014
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Your employees are a key asset in keeping your business running smoothly, but they’re not an insignificant business expense. Here are few strategies for controlling your payroll costs without shortchanging your staff, limiting your growth potential, or jeopardizing customer service.

  • Allow employees to work off-site. Giving employees the option to work remotely when their physical presence isn’t needed can shave money from your overall payroll costs. In fact, Bloomberg BusinessWeek reports the potential savings can be as much as $8,000 a year per employee. Beyond that, telecommuting allows you “to hire qualified employees in less expensive geographic locations, which is especially useful if you are located in an expensive metropolitan area,” says Sam McRoberts, a startup adviser who founded Vudu Marketing. Workplace flexibility also can contribute to greater employee happiness, productivity, and retention.
  • Compensate employees with more than money. Yes, you need to pay your employees a fair wage or salary. But there are ways to make employees feel appreciated — and get them to do more work — that have nothing to do with dollars. Instead of immediately hiring additional staff when the workload increases, remind your employees how important their contributions are to your business, says Deborah Sweeney, CEO and owner of MyCorporation. “Make sure all employees make the most of their time and are aware that a new hire may yield lower raises. Instead of more staff, experiment with increased pay for higher performers,” she suggests.
  • Use time-saving tools that let you focus your energy elsewhere. If you’re a small-business owner with few employees, there’s no reason to spend hours on payroll each week. Intuit’s Snap Payroll app for iOS allows you to quickly enter the amount of time each employee works (after you set up his or her personal and wage information). If you rely on an automated payroll system, choose one that “talks” to the other systems you use to run your business, such as point-of-sale, which can help you gauge your peak sales times. That way, you can ensure you aren’t overstaffed during slow periods.
  • Develop tight internal controls. “The biggest mistake owners make is focusing exclusively on the bottom line and not factoring in other sources and uses of cash,” says Gregory Wank, partner in the accounting firm Anchin, Block & Anchin. He explains that a growing business is likely using cash to grow its accounts receivable and inventory if it sells goods. “A growing company that earns $10,000 but needs to support higher inventory and receivables will use that profit by funding its working capital needs.” To keep tabs on your actual cash on hand, he recommends creating a “cash-flow dashboard” that serves as a visual snapshot of key performance indicators (like sales and cost of goods sold, cash balance, accounts receivable balance, and accounts payable balance). Additionally, Mark Schwaiger, managing partner at Infiniti HR, says it’s critical to keep credit available so you can implement a credit line for up to a month’s worth of payroll if you run into cash-flow issues. “If your average weekly payroll is $10,000, a working overdraft or business credit line of $50,000 would allow you to pay bills and not be at the mercy of some slower-paying clients,” he says.

Stephanie Christensen is a business writer for Intuit and is passionate about solving small business problems.

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