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