Once a quarter, our colleague, Joe Rossi of BBSI, hosts a local, 30-minute television program through Rogue Valley Community Television at SOU titled “Partners in Business”. It’s a talk show format that discusses small business management issues.
On May 4th, at 6pm, Ingrid Edstrom was invited to join for a focus on Small Business Payroll Administration.
Joe: Welcome, everyone, to Partners in Business, brought to you by Barrett Business Services Incorporated, otherwise known as BBSI. My name is Joe Rossi. I’ll be your host and moderator for Partners in Business. It’s a program that’s dedicated to exploring business management solutions that can help business owners with identifying opportunities or even avoiding mistakes that can definitely have an impact on the success of business itself.
On tonight’s program, we’re going to be discussing a very important facet of business operation, and that’s payroll management. There’s an old adage in business that there’s two things that you always get right in business. One is your employee’s name, and the second one is their pay. With that in mind, we’re going to be discussing payroll administration with some of our local payroll administration experts. I’ve brought three of our experts from here in Southern Oregon to the set tonight to discuss payroll administration. Let’s get to some introductions.
[expand title=”Continue reading…”] Let’s start on my right, Mr. David Mathieu.
David: Thank you.
David: Thank you. David Mathieu. I’m a certified payroll professional, and I’ve been the area payroll manager for Barret Business Services here in Medford for about 20 years. It’s been a great pleasure learning all facets of payroll, HR, all the intricacies that combine the two.
Joe: Welcome, David. It’s nice to have you here tonight. Thank you.
David: Thank you.
Joe: Let’s start across from me.
Ingrid: Hi. Thank you so much, Joe, for having me. My name is Ingrid Edstrom. I’m the owner of Polymath Bookkeeping here in Ashland, Oregon, and we focus on empowering small business owners through bookkeeping education and services. A business owner that is looking to get their business in the right track financially, and understand what those finances mean so they can answer the important questions that they have.
Joe: Outstanding. It’s going to be great to have all this brain trust with us. Then we have one more person to your left.
Dan: Good evening. I’m Dan Johnston, owner and operator of Medford Bookkeeping, in Medford, Oregon. I’ve been doing payroll for over 20 years, and I find it’s very appropriate for employees to be paid properly, and it’s very appropriate for the owners to have their payroll taxes paid on time, and exactly correct, W3s, W4s, payroll 941s, 940s.
Joe: We’re going through all that today, aren’t we? [crosstalk 02:50] We have quite a few topics to discuss tonight in the next half an hour. We’re going to talk about the basics of payroll management definitely, and try to define what that means. Then we’ll move on to payroll systems. We’re going to talk a little bit about what is a payroll system, and how do you manage that?
We also have some compliance issues we have to talk about. Payroll has a lot of compliance that if you don’t do it right, guess what? Somebody’s going to be knocking on your door. Then finally, I think it’s going to be valuable to talk about some of the payroll pitfalls. Some of the things that small businesses, medium sized businesses, large businesses, they can maybe run into some pitfalls if they don’t get this right. Let’s turn them on to how to do it right. Payroll basics, payroll management basics. What does the government tell us we have to do with payroll? What’s the bottom line? You have to have some payroll. What does that mean? Ingrid, let’s start with you.
Ingrid: I think the main thing as far as that bottom line is understanding who are you paying. Who is an employee in a business? The people that you’re paying for the services can either be an on-staff payroll employee, or they might be a contractor, which in that case, that person’s actually a vendor. If they’re not going through the legal payroll systems, where the fill out a W4, I9, and you’re deducting taxes from their paychecks, then they’re not actually an employee. It’s an important difference to know between the two.
Joe: When it comes to the business, it could be a single location business. It could be a multi-location business. What’s the most important part of understanding payroll from the standpoint of business logistics?
David: You’ve got to be able to centralize it. If you’ve got multiple locations, you could have multiple tax authorities. You can have transit tax. You can have variances in labor force, so that might mean different methods of time tracking.
Joe: With those different locations, let’s define payroll pay periods. Talk to me, Dan, about the kinds of pay periods that a different location can have. You can have some people working on a one-week payroll, some on … Give me some examples.
Dan: Biweekly, every two weeks, or bimonthly, twice a month. Monthly, once every month, or some people are on yearly. Very few.
Joe: Semi-monthly though is like the first and the 15th.
Dan: First and the 15th.
Joe: Biweekly is every two weeks. You have, what, 26 pay periods?
Dan: Correct, 26. Bimonthly, you have 24.
Joe: Do we call it semi-monthly or bimonthly?
David: Most people say semi-monthly. Bimonthly technically is every two months, which I don’t think anybody does.
Joe: I got you. Semi-monthly is twice a month. Biweekly, there’s 26 pay periods in a year.
Joe: Then when you get to the monthly, that’s just every 30 days. A lot of time, on those they pay, about what, two or three days after the end of the month?
David: Oregon has a statute that says, by law, you need to have your pay no later than the 35th day after the start of work. If someone starts on the first of the month, then you need to pay them no later than the fifth, which is why a lot of monthly payrolls are dated for the fifth.
Joe: How do employees keep their time? How do they keep track of their time? What are some of the systems, Ingrid?
Ingrid: There are a lot of different options. There are some fantastic online time clocks, where someone can log in, and click in, or there’s punch cards where you stick the card into a machine. It could just be a time sheet, where they’re writing down what time they came in, what time they leave. The main thing is that time tracking is legally required for hourly employees. They can’t just say, “Oh, I worked five hours today,” without any kind of system to keep track of it. You need to know what time they arrived, and what time they left.
Joe: Some small businesses still just use a timecard. It’s just you write your time down, but others are much more sophisticated.
Ingrid: Then you’re going on the honor system, if they’re just writing down what time they came in. You could have an issue with payroll fraud, someone actually stealing from the company by padding their timecard, if you have no accountability and checks and balances in place to ensure that it’s correct.
Joe: When it comes to the types of pay that employees can put on these timecards, Dan, you’ve got standard pay. You’ve got overtime pay. What are some of the pay types that you see on timecards?
Dan: Sometimes people have two different pay scales by prior agreement. Not only do they have overtime, they have holiday. They have vacation. They might have a different pay scale for other kinds of work.
David: Piece rate.
Dan: Piece rate, correct.
Joe: You made a good point there. Prior approval is really important
Joe: In how you schedule what we would call pay differentials. There’s shift pay. There could be on-call pay. There can be a lot of different pay types, but …
Joe: Commissions. Thank you. But really by approval before they start putting stuff on their timecard. That’s a really important point. Let’s talk about some payroll, what I think are basics of payroll management. Should we have an employee manual with some payroll policies somewhere in the company? What do you think?
David: Most definitely.
Dan: Yes, sir.
Joe: Give me an example of what that looks like.
Ingrid: It can look like a lot of different things. I originally got my employee manual from my company on the internet. I found a template that I adapted to suit my company’s needs. The main important thing is that an employee manual within a business is a living document. It is a way of communicating with your team, and showing them that you value them. Having the core principles within an employee manual where you’ve got everything in writing so that everyone can be on the same page. It’s very clear, what are the pay periods? What is the difference in your company between the benefits that an hourly employee receives versus a salary employee? No one ever gets confused and thinks maybe they’re being jilted or something like that.
Joe: Right. Is it also important, David, to have the work flow for your payroll administrator in that book so that it says, this is the date we collect timecards? This is the date that we have to submit the payroll approval. This is the date we pay.
David: Yeah. This is how your pay period is defined. This is how termination pay is, especially if you’re dealing with anybody who’s on a commission basis. You need to have some kind of definition in there for how you would pay out termination pay, when sales aren’t collected. That’s a particularly important one.
Joe: What about checks and balances? What is payroll checks and balances mean?
Ingrid: It can be quite a few different things. There are so many levels in which people are interacting with the payroll, the first being the timecard. Ensuring that people are actually coming in when they say that they’re coming in, and that there’s accountability there and error checking. Then the next level, the person who is collecting the time cards and putting those hours into the system, and ensuring that there’s no mistakes being made there, or fraud by the payroll administrator.
Joe: Fraud’s a very important part. We don’t think about that a lot, but obviously, it has to be a concern for business owners, large companies, small companies. Somebody could be fraudulently putting down hours or padding their pay, if you will. That’s a really important part.
Also, I think just in basic payroll management practices, recordkeeping is critical. Is it important then, that somewhere in all this that there’s a recordkeeping system or policy?
David: It’s required by law. Most federal statutes require timecard record, pay records, W4s be he held for at least three years.
Joe: Okay. That’s a very important statute to understand. In all of this, let’s say we ordered a payroll system. Really, you’ve got to have a system somehow. I think there’s a wide variance. We have our audience out there. Some are small business owners. Some are solo-preneurs trying to think about how they’re trying to get into business and do payroll. Let’s talk about the lowest form of a payroll system, all the way up to the most technical or sophisticated. What’s the lowest form of a payroll system that you can basically have?
David: Timecard written on this piece of paper. Folded.
Ingrid: Paper and pencil.
Joe: Paper and pencil. The old paper and pencil system, but boy, I tell you, you better have some really good recordkeeping system somewhere in there.
Joe: From that, what can we move to? What’s the next level up?
Ingrid: A computerized spreadsheet, such as Excel.
Joe: Are there businesses still using a lot of Excel out there?
Ingrid: Not very many for payroll. There are better options out there at this point. Excel, when it comes to payroll, it’s a fancy calculator.
Joe: Yeah, exactly. Dan, you do see some then. Are they smaller businesses?
Dan: Yes, I do. They’re very small, and I switch them over. I’m a QuickBooks Pro advisor, so I switch them over to QuickBooks.
Joe: Okay, that really becomes the next level up, and that’s what we call maybe a PC application. Is that QuickBooks would be?
Joe: What are the different forms of QuickBooks, and how do you use that?
Dan: There’s QuickBooks Online. There’s QuickBooks desktop, two versions, one for Macintosh and one for PC.
Joe: Pretty self-explanatory?
Dan: Self-explanatory, if you update your software. These days, payroll, tax statutes change, sometimes on a weekly basis. It’s important to keep updated.
Joe: If you’re not using paper and pencil, Excel spreadsheets, or even a PC application, what’s the next level up?
Ingrid: Getting some help.
Joe: Assisted payroll?
Ingrid: Yeah, getting some help, whether it be QuickBooks. It has some solutions, where you can get assistance from them, or hiring a payroll service, such as BBSI, or getting a bookkeeper to assist you on the outside with your payroll to make sure everything’s being done properly.
Joe: Excellent. Good. Finally, what’s the highest form of technical payroll that someone can do, Dan?
Dan: You can actually outsource it completely.
Joe: Okay. Online?
Dan: You can do it online. You can actually go through, if you go through a program like BBSI, of course, you have a dedicated payroll administrator, who almost exclusively takes care of the whole system management, the process, and can really just leave the basic recordkeeping to the business owner.
Joe: Real time saver, in that sense. Yeah, BBSI does that, ADP, even banks. Wells Fargo, I imagine there are other services that do this totally online. Would you call it non-assisted almost?
Ingrid: There’s differences. One of the solutions that I enjoy working with is QuickBooks Online payroll or Intuit Online payroll. Intuit Online payrolls flows very well into any of the QuickBooks solutions, as well as several other programs. You can use it with QuickBooks desktop for PC or Mac, or with QuickBooks Online. It’s a solution that I’ve found more users can use on their own, whereas the tools that are integrated into the desktop program are a little bit more complicated. I found that the end user often ends up making mistakes. It’s really made for a payroll professional to be supervising, which is why QuickBooks offers enhancements and assistant services through that [crosstalk 13:45].
Joe: Does that include training? Can you get training, or is there any one of those systems we’ve talked about between the banks or BBSI that can give a business owner training on how to get their payroll done when they first want to put a system in?
Ingrid: We offer that service.
Joe: Okay, so assisted then.
Ingrid: Hire a bookkeeper. Hire BBSI, sit down with a local professional face to face, and talk to a real human.
Dan: It’s really helpful, isn’t it?
Joe: What about cost comparisons between these systems? If you’re using a BBSI, there’s a premium or a mark-up. Is there one service or level of service that’s a little more cost effective, or less cost effective than that?
David: It really depends on the business owner. Everyone has to have their level of comfort with what they want as a return investment, and from an accounting standpoint. What do I really want to see? How much of it do I really want my hands on, on a daily basis?
Joe: Okay. It can vary then. QuickBooks Pro, is there a multi-subscription to that? How does that work?
Dan: You can go monthly subscription, or you can purchase a yearly subscription. The main thing about this is to have someone that is willing to take responsibility for the checks and balances of your payroll. If there’s an error, who’s responsible for that? Who’s going to make up the difference?
Joe: When you pay for a service, that could be a very important facet of why you do that.
Joe: What about back-up and disaster recovery? Do any of this systems offer that kind of service?
David: They’re pretty much obligated to. You would want to assured that anybody you outsource to, for example has a bona fide solid disaster recovery plan. Then if you’re doing it yourself, then Ingrid or Dan, you can probably speak to people having back-ups in hard drives on an off-site, just so that you don’t lose anything in the event of utter disaster.
Joe: That’s better than the old Excel file, or working with the old ledger book, and trying to, you lost it, that’s not going to be …
Ingrid: At the same time, sometimes things happen. I’ve had a client come to me that said, “My bookkeeper just passed away, and I need to pay my employees on Friday. What do I do? Everything is on her computer with her grieving husband.” When you’re in a situation like that, or if you’re using a ledger book, and the building burns down, what do you have in place?
Those are important things to think about ahead of time. Also, with the costs comparison, keep in mind how much is your time worth? If you’re doing your payroll in a ledger book, when you could be meeting with your clients, that’s an important thing to be keeping in mind because it would probably save you tons of time and money to hire a professional to assist you with that.
Joe: Well said. I think part of what I think is important about having assisted payroll or someone to help you is the compliance issues. Let’s move into payroll compliance because you’ve got to file. You’ve got some deadlines. What are those?
David: Where do you start?
Ingrid: So many.
David: You’ve got your basic deadline. Okay, when do you have to pay your employees? That’s the first one that people think of, and it’s probably the easiest of them all, when you have to pay your employees. You set those dates, and you maintain them. Then there’s, when do I have to deposit my taxes? When do I have file my quarterlies? I have to have my W2s by January 31st of the following year, filing with Social Security, etc.
Joe: Okay, let’s back up a second now. Let’s talk about payroll, all those taxes you have to pay. What are some of the payroll taxes that businesses are required to remit?
Ingrid: Depends on what state you’re in.
Joe: Let’s talk about Oregon, sorry.
Ingrid: Okay. There are the federal taxes that are pretty much straight across.
Joe: Federal unemployment, FUTA.
Ingrid: Yeah, there’s the federal unemployment. There’s also Social security and Medicare, of which the employee pays half, the employer pays half. Then there’s the federal income tax. Then here in Oregon, we have the Oregon state income tax. We also have state unemployment, also known as SUTA.
Ingrid: FUTA and SUTA.
Joe: FUTA, SUTA, FICA.
Ingrid: There’s the WBF, which is the workers benefit fund, which is often confused with workers comp insurance. They are not the same thing.
Joe: With all that in mind, yeah, I think I’m going to have someone assist me with my payroll. That’s a lot of taxes you have to remit, and you’d better do it on time.
Joe: They’re going to come after you, if you don’t have those in.
Ingrid: The penalties and interest can be prohibitive.
Joe: I can imagine. Then, David, you mentioned quarterlies. What does that mean? What are 941s? What are 942s? What are those?
David: A 940 and a 941 are federal filings to accompany your federal tax deposits. The W3s report to the Social Security Administration. The W2 is the year-end tax statement. Then there’s the Oregon equivalent. There’s the Oregon quarterly, and the form 132, when you file those four times a year. That accompanies your tax deposits to the state.
Joe: Then there’s a lot of stuff that can come out of a paycheck for an employee. You’ve got commissions. Just the doing business items that might come out. Employees can take loans. You have to somehow pay those back. Give me a little information about that as well. That’s part of what you’ve got in the payroll system, correct?
Ingrid: There are employee advances, or a loan, like you were talking about. Oftentimes, say, a company is paying just on a monthly basis. Partway through the month, the employee comes to the employer, and says, “I need an advance.” They might write them a check for a few hundred dollars, and then that few hundred dollars comes out of their next paycheck. That needs to be tracked, otherwise you end up in in a situation where someone can be taking advances and they just never end up paying it back.
Joe: Oh, my.
David: There’s also pre-tax and post-tax deductions, depending on the type of health insurance plan you might have. If you’ve got bona fide section 125, IRS talk, cafeteria plan, that allows you to withhold bona fide medical expenses, or health insurance premium expenses, on a pre-tax basis, that’s where you don’t have to assess the employee federal and state withholding on quite a bit of stuff.
Joe: It’s getting complicated. We’re getting into the weeds now. [crosstalk 20:00]
Dan: Non-taxable reimbursements.
Joe: Then, let’s talk about one really important one, garnishments.
David: Garnishments with small businesses, they get hit with, I’ve got to do this out of the payroll system? Really? How does that work? That’s a tough issue, isn’t it?
Dan: It is. For many people, that’s the worst thing they want to see. They don’t want to see that because it takes a lot of upkeep and recordkeeping. You’ve got a garnishment of $1,000 for one of your employees. You become responsible for that being paid back for 90 days, if it’s a regular garnishment, or it could be a child support. It could be federal withholding, federal tax. Those are all different rules.
Joe: Wow. Finally, there’s tips. If you’re a restaurant or a restaurant owner out there, and you have to …
Ingrid: Or a spa.
Joe: Thank you. There’s tips to be handled. How complicated is that now for a business owner to handle.
Ingrid: It can be very complicated, especially in the case of a restaurant where there are cash tips, and how those tips needs to be reported. Are you giving the employees their tips in cash at the end of each night? How are you recording that? How does it end up on their W2, if it ends up on their W2? There are a lot of restaurant owners that are not in compliance with their cash tips.
Joe: How do you handle cash versus credit card tips? That’s a whole other area that we might not be able to get into tonight, but certainly that’s why you have a payroll professional that helps you because they have to help lead businesses through this myriad of compliance issues when it comes to these deductions.
I do want to talk a little bit about payroll pitfalls before we into the later parts of the show because I know that in your estimations as payroll professionals, you see businesses get in trouble. They get in trouble how? What’s a good one? What are some of the ways that businesses just find themselves in a pitfall?
Dan: By fouling up the most basic one, which often involves employee terminations, not paying your people on time. There are different deadlines. Within the state of Oregon, there are different deadlines. If an employee gives less than 48 hours’ notice, you have 5 business days, or the next payday, whichever comes first. If it’s more than 48 hours, then you’re supposed to have the final paycheck on last day. Termination, end of next business day.
Joe: Falling behind with FUTA, SUTA, and FICA. I can just see there’s just a lot of that going on too. Let’s just talk briefly a minute about healthcare too. We’ve got healthcare reimbursements, taxable versus untaxed healthcare.
Ingrid: The legislation’s changing because of the Affordable Care Act. It used to be that some businesses would reimburse for a certain amount of healthcare if the employee is paying for their healthcare on their own. That is actually now illegal, for them to do it that way. Either the employee pays for their healthcare on their own, or it has to be business healthcare plan that the employee is offered as a benefit. The two don’t get to intertwine. You can’t pay somebody back for their healthcare.
David: The only real legal work-around is you get to earn a dollar more an hour. That way, it becomes part of your taxable wage. It becomes subject to overtime.
Ingrid: Or offering them a payroll bonus that has nothing to do with healthcare.
Joe: The final pitfall I want to talk about is when you change a payroll system, what kind of complexity is involved in changing your payroll system?
Ingrid: It depends on what you’re changing to and from.
Dan: Getting clear information from what you were coming from, and placing that into your new system, may it be journal entries. Apples must equal apples. Oranges must equal oranges.
Joe: By all means, have a guide, someone who can help guide you from one, changing from one payroll system to the other.
David: In a perfect world, you’d have parallel testing going one.
Ingrid: It’s easiest to change payroll systems on a year break. If you’re going to change payroll systems, try to plan it for a year break, so that you’re finishing up all that payroll from the previous year. Get the W2s out, all the reporting finished. Then you’ve started January 1st on your new payroll system. If you can’t do it on a year break, try to do it at least on a quarter break.
Joe: There you go.
Ingrid: There’s tracking that’s going through the system with each payroll. If you switch horses midstream, then you’ve got to reenter that data. If you have a lot of employees, that process can be prohibitive.
Joe: What we’ve tried to do here in less than 30 minutes is pack about 5 pounds of payroll into a 1-pound bag. There’s got to be some place in Southern Oregon where business owners, small business owners, large business owners, payroll administrator can get some help. Where is that, Ingrid?
Ingrid: The Southern Oregon Bookkeepers Association is a really good place to start. SOBA really focuses on ensuring that business centers are working with responsible professionals. A lot of people don’t know that there isn’t a certification for bookkeepers that’s required. It’s not like a CPA or a tax professional where you have to have a certification in order to prepare someone’s taxes. Bookkeepers, like Dan and I, are certified QuickBooks Pro advisors, but anyone can say, “I’m a bookkeeper,” and put an ad in the phone book, and business owners often don’t know what you’re getting.
All of the bookkeepers in the Southern Oregon Bookkeepers Association have gone through reference and background checks, and are supported by a group of their peers.
Joe: Business owners can contact SOBA, if you will. That’s the acronym, SOBA. Can anybody join it through? Do you have to be a bookkeeper then to actually get into SOBA? I’m a little bit …
Ingrid: We have four different levels of membership. The bookkeeping membership, bookkeepers pay to become a member of SOBA. That gets them a profile on the Southern Oregon Bookkeepers Association website, where business owners can find them. We also have affiliate members, and BBSI is an affiliate member of SOBA, where non-bookkeeping professionals can join the organization because they want to network with bookkeepers. Then they get their logo on our website linked back to their website.
Ingrid: We also have intern members. People who are wanting to get into the bookkeeping profession, learn more about bookkeeping, network with bookkeepers, or if they’re an on-staff bookkeeper for a local business that wants the education opportunities, they’re welcome to sign up as an intern member. Then also supporting your community members. We welcome donations. We are a 501(c)(3) non-profit.
Joe: Good. Again, the information is up on the screen. Your Facebook page was up on the screen a minute ago, and certainly your information on how to contact you in Ashland. That’s where that’s centered, SOBA. It also incorporates all of Southern Oregon.
Joe: I know that people can get help that way. Wow. A lot of information on payroll tonight. I don’t think that we can cover everything in 30 minutes. We may end up having to do a one-hour show next time to get all of this stuff in. I think one of the lessons to be learned here though is for small business owners, even for payroll administrators who are out there in large companies, medium businesses, get some help. That’s why we talk it up. That’s why we’re doing this show tonight. I know that there are a lot of intricacies to payroll that are very important.
Yeah, we certainly want to thank Barrett Business Services Incorporated for sponsoring the show tonight. Barrett is a company that does payroll administration, and then focuses on other aspects of workforce management solutions. As you can see on the screen, workers compensation coverage and risk management. Risk mitigation is a very important part of it. BBSI does include top line temp staffing and recruiting, one of the top temp staffing and recruiting agencies in all of Southern Oregon. Then finally, human resource consultation.
It’s interesting with human resources and payroll, there’s often a dovetail between understanding wage an hour law, and then how you pay people, so I know when we get into, at BBSI, there’s always a crossover, if you will, between HR and payroll consultation. There’s the website for BBSI up there. Again, thanks so much for BBSI to sponsor the show. Any information you need, any questions, you can contact SOBA or BBSI.
Thanks a lot for being here tonight.
Ingrid: Thanks for having us.
David: Thanks for having us.
Joe: Great to have you on guys on the set.
Dan: It’s been my pleasure.
Joe: To talk this out. We’ll get you back on one of these days, or maybe somebody out there in our audience can find their way to SOBA or BBSI and figure that out. Thanks a lot.
Dan: Thank you.
Ingrid: Wonderful. Thanks, Joe.
David: Thank you.
Joe: Ladies and gentlemen, thanks again for tuning into Partners in Business. This is a show that comes to you on Rogue Valley Community Television in Southern Oregon Digital Media Center. We definitely want to thank the students who are here to lend support to do the show. We’ve got Rob and Evan and a bunch of students here that we want to thank for helping us out. Then back in the control room, Brandon and also Charles, who help us do the show.
On behalf of Partners in Business, thanks so much for being with us here this evening. We hope to you on the next program edition. Good night. [/expand]