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Let's talk about Payroll Expense.

Posted on August 11, 2015 at 1:33 AM

Today, we will be taking a look at an essential expense item in a Business. When you have a Business, you will surely have Payroll Expense. Even if you work alone, after all the expenses are paid, you are the payroll expense. At the beginning of every business, a Business owner does mostly all the work in the Business, but as the Business grows, it becomes impossible to juggle it all together.

Payroll Expense is a bunch of complex array of talent, thinking and behavior. Every Business gets its life from People with ideas, dreams, passions, skills, courage, imagination and other purely human qualities. All these inevitably make Payroll an expense Line item that cannot be neglected. Let's take a look at some No- Compromise Facts about Payroll Expenses, and I promise, that these will be mind blowing for you as you manage your Business.

Payroll Cost is a Fixed Expense: It is important to note that the Greatest Portion of your Payroll Cost is a "Fixed” Expense. "Fixed" here means a constant expense of the Business, that does not change based on Sales, Number of Employees or Other Variables. When Employees are added to the fixed schedule as your Business increases, they are your "Variable Cost Employees". This takes us to the next fact about payroll expenses.

Payroll Expenses can be controlled: Payroll Expense is usually the largest expense in any Business, and if it's not controlled, it can wreak havoc on your Cash flow and profits. Whereas, if managed properly, a Business Owner will have no regrets incurring Payroll expenses, since he/she cannot do everything and be everywhere in the Business. As a Business Owner, your job is to prepare yourself and your Business for growth, while you leave the operations of your Business to people, that know how to manage it best.The general benchmark for service payroll is 30- 35% of your Gross Revenue, And Administrative /Guest Services is about +/- 10%. Having this knowledge should enable us to have an idea of our Payroll cost before it is incurred. It is also great to know that Payroll Expenses can be controlled through sound scheduling and improving employee productivity.

It is about Time: The Payroll expense line item on your Profit & Loss Statement represents the purchase of your employees' time. The purchase of time gives you access and use of your employee's talent, skill, creativity and other liabilities. Please note that it is the Business Owner's responsibility to utilize the time effectively and efficiently. When the Business Owner buys too much time, he/she ends up putting stress on Cash flow and shrink profit. Whereas when too little time is bought, you compromise the ability to meet demand and deliver quality results. Time is a precious commodity that requires constant attention.

It is About Productivity: Every Business's productivity rate is a primary critical number. It is a ratio of time available to time used. As a Business Owner, you cannot control Payroll cost, until you understand that you are not ' scheduling' people, but rather “purchasing" a potential to work. You increase productivity through Training and the use of labor saving equipment and products. Perhaps when we know this, we will adjust our need to schedule only the number of staff, that are actually needed for a job rather than getting more than the necessary staff because of fear of being short staffed.

Payroll Expense is about Investment: Payroll is an investment in your employees. In fact, like any worthwhile investment, Employees need continuing education to develop and refine their skills. They need to know how; they are doing through scheduled performance reviews and one-on- one session. Most of all, employees need to know that they are appreciated for their contribution to the Business. A Business that invests and cares for its employees is a Business that maximizes its payroll investment because you can only get the best out of an employee that is well taken care of and highly appreciated.

It is less about the Money: Money does not buy employee loyalty, passion and commitment to your Business. People work for opportunities and fair pay. Your Employees will deliver their best performance and productivity, when there is meaning and purpose in their work. As a matter of fact, Money and Profit is an outcome derived from what the Business stands for in terms of core values, fairness and integrity.

Having explained these facts, we will look at the three (3) Groups of Payroll Costs. They are :

A) Compensation : These are the amounts paid directly to the Employee or a Third(3rd) Party for Services provided, work done and legal compliance( Child Support, Court Ordered Payments or Automatic Payroll Deductions for Loan Payments. Examples are Salaries and Wages.

B) Taxes: These are amounts paid directly to the respective governmental authorities for both the employee's withholdings and the required employer matching Unemployment Taxes. Examples are Social Security, Medicare and Federal Unemployment and state Unemployment.

C) Benefits: These are Payments that are made to the beneficiary and the benefits providers based upon the agreed terms between the 3rd Parties (Employee, Employer and the Benefit Provider) .Examples are Health Insurance, Vacation/Sick Time with Pay, Dental/ Vision/ Cancer, Retirement and Life Insurance.

In conclusion, Payroll is truly more than an expense to be managed and controlled..... It is something extremely personal because it is about Peoples' lives. Given the proper attention, Planning and financial discipline, A Business’s Payroll expense should be a source of pride to any Business Owner. If not, you are missing what Business is all about.

Have you been overwhelmed with doing it all in your Business and know that it is time to recruit employees for your Business?
Are you worried about how to handle your Payroll Expenses?
Do you need help with setting up Payroll Expenses for your Employees, as well as remitting the payroll taxes to the appropriate authorities?
Are you overwhelmed with handling your Payroll expenses and need help with paying your employees at the right time?
Do you need help with filing the appropriate payroll reports with the Federal and State Agencies?

As a Business owner, your job is to prepare yourself and your Business for Growth, why don't you let us manage your Payroll Expenses and take care of your Payroll taxes? You will be glad you did. Give us a call on 202-422-4586 and let's discuss how we can help you.

Categories: bookkeeping, Payroll