February 20, 2019
For many businesses, payroll is the single largest expense. Just the basics of wages and salaries add up significantly.
But it doesn’t stop there. Your payroll costs are increased by about 24% when you add in vacations, FICA contributions, as well as unemployment, workers’ compensation, health insurance and other fringe benefits. And then there’s overtime — an expense that’s often difficult to control.
If these costs aren’t closely monitored and controlled, your company could lose its competitive edge or, in a worst-case scenario, become unprofitable.
Here’s a list of suggestions that can help you cut some costs while still adequately compensating staff members for their contributions and skills:
Payroll Savings Checklist
___ Pay employees twice a month. This cuts costs and saves the time of cutting checks. It also allows you to ensure that paydays fall during a time when cash may be more plentiful.
___ Set up a centralized system for approving overtime and a policy outlining the criteria for receiving it.
___ Make sure that you aren’t paying overtime to exempt personnel. And check that you are paying overtime to the proper employees and in compliance with the latest rules. Lawsuits and legal actions can be costly.
___ See if your business can use a “fixed salary for fluctuating hours” to minimize overtime compensation. With this method, which may not be available, you might not have to pay time-and-a-half.
___ Eliminate loans to employees if possible.
___ Charge interest on employee loans and make sure the rates and payment terms are consistent for everyone.
___ Designate one employee to report workers’ compensation claims to your insurance company. If not promptly reported, your insurance company could refuse to pay the claim and these actions have been upheld in the courts.
___ Evaluate all employees periodically to ensure you’re paying them what they’re worth. But keep in mind that any deviation from the current status can lower morale.
___ Evaluate the effect of a Section 125 plan. Offering employees a premium-only plan, a flexible spending account or a cafeteria plan gives them a chance to pay for benefits on a pre-tax basis, lowering payroll taxes for both them and the company.
___ Review bonuses to ensure that payments aren’t out of proportion with an employee’s contributions. Significant contributors should receive incentive commensurate with their services while poor performers should receive minimal or no payment.
This list is not all inclusive. Ask your payroll and tax advisor about strategies in your situation.