The costs related to payroll can really add up to your expenditure bucket. From payroll materials, like paper checks, to the time required in processing payroll, there are multiple necessary expenses. But a company would only have limited options to reduce these expenses. Let’s look at these 5 ways of reducing payroll costs,
Automating Payrolls
Payrolls can turn out to be a nightmare for business owners when they have to dig deeper looking into the spreadsheets, make calculations, ensure compliance, fill out government forms, look into the taxations & payments, and if this wasn’t stressful enough, then also worry about the consequences of faulty calculations or delayed payrolls. This also means that you might end up having more employees for handling payrolls.
These tedious tasks can easily be taken care of by automation. Below mentioned pointers will help you understand the benefits from a payroll optimization perspective,
- Automating payroll will ensure that you are paying your employees accurately. No one gets overpaid or will have pending arrears.
- You can also automate tax filing as a part of your payroll automation, saving you a lot of time and money in fixing the penalties if some miscalculation happens.
- You can ensure that you are being compliant with U.S. laws of payrolls and taxations.
- Most importantly, you will have the ability to track issues related to integrity, attendance, login regularization, etc. Based on this data, you may fire or warn someone and they cannot question your decision because the system cannot be biased towards anyone.
According to American Payroll Association, automation reduces payroll processing cost by 80% and 66% of this 80% is by reducing errors in invoices and paychecks.
Key Takeaway: Take advantage of technology for executing HR processes with lesser mistakes and minimal margin of errors.
Staff Augmentation
In a business, there are multiple factors that makes up your costs. I have tried to share all the major factors here,
- Payroll cost
- Infrastructure cost
- Administration and Legal cost
- Software Licence cost
And if you think carefully, pointers 2, 3, and 4 are indirect contributors to your payroll cost. The infrastructure is required for the employees to sit and have a nice environment to work in. You will also end up investing in the training and documentation required for your employees and of course, software licenses are required for work execution. Most importantly, you also have to pay salaries to your employees. So, to save yourself on a rainy day, payroll reduction is what you have to look at.
You can easily delete these expenses from your balance sheets by augmenting staff instead of hiring inhouse employees. Staff Augmentation has become a buzzword for companies in order to cut on their payroll costs. When you augment staff from a Staff Augmentation company like Resourcifi, you get freed from any liabilities and payrolls. The employees can act as your extended team and work for you remotely until your objective is accomplished. Augmenting team can help you,
- Save your recruitment cost
- Save on the infrastructure cost
- Eliminate additional cost of having inhouse employees
- Save on the payroll and administration costs
- Increase your return on investments
Key Takeaway: Staff Augmentation can be of extreme help to stem the cash flow going out when earnings fall below a certain point.
Direct Deposit
According to an article published on Wall Street Journal, it costs somewhere between $4.00-$20.00 to issue a paper check based on the price of the check, material used in processing it, plus the shipping. Also, it costed $26 billion to $54 billion to US businesses in 2010 for simply issuing and depositing checks.
These numbers look crazy, right? Thus, moving to direct deposits can help you save both time and money. Using a direct deposit, your company can actually save by,
- Reducing the costs required in reissuing checks if the check gets lost or stolen.
- Avoid the payment charges imposed by the bank.
- Reduce the extra headcounts to maintain balance sheets.
- Gaining better visibility and control in managing company’s cash.
According to a study commissioned for APA by the Hackett Group, 90% of organizations have moved to paperless payroll distribution because of the advent of direct deposit and payment cards. It’s high time for all the Entrepreneurs to start optimizing the payrolls and utilize those savings in building strategies for making more dollars.
Key Takeaway: Direct deposits or e-payments can actually help you save millions of dollars on your payroll costs.
Four-days Working & Reducing Wages
Shifting from five days work week to four days work week can generate an immediate deduction on payroll by 20 percent. By doing this, employers can save significantly on their utility bills and experience an overall deduction in their expenditure. Another way of making deductions more acceptable is by having a performance based incentive structure. This will give employees an opportunity to earn more if the organisation meets specific revenue goals.
This way, you indirectly end up motivating your employee base to be even more productive and efficient which, in turn, will help you generate more revenue.
Key Takeaway: Try to explore ways of increasing productivity of your employees which will eventually help in optimizing your payroll costs.
Stop Your Weekly Payroll
Unfortunately, many small companies end up paying their employees on a weekly basis. Payroll processing costs and other administrative expenses can turn out to be too much to handle for startups or small businesses because they do not have automatic payroll processing systems that big enterprises can easily afford.
Issuing salaries on a weekly basis only adds up to this already expensive process. Not to mention, the time spent on issuing payroll checks and maintaining those records. Thus switching to a bi-weekly or a monthly payroll system can reduce payroll expenses and administrative costs by 20 percent to 50 percent, a significant decrease just by reducing the number of payroll periods.
Key Takeaway: Biweekly/monthly payrolls instead of weekly payrolls can bring down your payroll costs significantly.
Obviously, some of these methods can be tough on employees. However, with unemployment increasing at a rate of 8% every quarter, most employees would agree to have something than having nothing.
Whatever form of payroll deductions you make, understand that it will have an impact on your company at all levels. An ideal approach is to be positive and remain strong headed, but truthful about the challenges being faced by your company.
A great leader always ends up making the financial sacrifices before asking his/her employees to make those sacrifices. Expensive mistakes can be avoided with your experience and contingent workforce.
