Why You Should Pay Your Employees On Time
On occasion, small business owners choose to delay payment to employees or to not pay terminated employees, just to save some money. However, if you don’t pay your employees regularly, not only does it negatively impact your small business, but it also impacts the way that employees perceive your business.
Payment methods and frequency have a direct impact on your employees’ lives both in and outside of the workplace. Net pay doesn’t just determine where a highly skilled employee will work, it impacts how they live.
Your salaried employees are a crucial part of growing and sustaining your business, since if their hourly wages affect their work-life balance in any way, it’s going to impact their productivity. This means that your payroll process is directly related to the overall success of your business.
Not to mention the potential legal ramifications of not paying your employees on time that could result in penalties, fines, and a damaged employee-employer relationship. These are issues that can be easily avoided by sticking to a strict pay period schedule.
Because of these and even more considerations, it’s important to have a comprehensive plan for how you pay your employees. In this post, we’re going to dive into everything that goes into employee payment, from laws and regulations to common misconceptions. By the end, you should be well equipped to handle employee payment.
Note: If what you’re looking for is a way to streamline the employee payment process, you can’t go wrong with a payroll system like Buddy Punch. In addition to having built-in payroll features, Buddy Punch acts as an all-in-one employee management tool thanks to time tracking and employee scheduling features. Click here to learn more about our software and see why over 10,000 business owners have made the switch.
How Employee Rights Impact Payment
Nearly every state has laws in place to ensure that employees are paid biweekly, while other states only require weekly or monthly payments. These pay stubs can be sent in the form of paper checks or direct deposits into employee bank accounts. No matter what the state laws are, there are procedures set in place in the event of a missed or late paycheck.
Employees have the right to file a claim to their state employment agency. This often results in an investigation of the business. The outcome of the investigation can lead to a lawsuit against the employer or possible forfeiture of their business license. Not only will the business owner need to pay the employee the back owed amount but they will also likely end up paying fines and penalties as well.
That said, there is no federal law that dictates how often you have to pay employees. However, you do have to keep a regular payday – no changing it several times on a whim. That’s not to say you can never alter it – but it should be for a legitimate reason, it should be permanent, and it should not impede with overtime pay or meeting the federal minimum wage – otherwise, you’re looking at Fair labor standards act (FLSA) violations.
This is why business owners often turn to payroll software to help them run payroll. For one, it ensures that employees are paid on a regular basis. Also, using software for processing payroll can turn a normally time-consuming process into something much easier, thanks to automated features making it easy to keep and pay out accurate payroll records.
If, even with payroll services and software, you find yourself in a situation where you are unable to pay your employees on time, the first thing you should do is examine your business model and determine where other costs can be cut. Touching employee pay cards is a messy situation that is best avoided for your benefit as well as theirs.
Just remember that your hourly employees (or freelancers) are your most important asset, so it is essential to keep them happy by paying them for the work they have done.
Proper Payment Leads to More Productive Employees
We mentioned earlier many employees rely on a stable paycheck. If you are not paying them consistently you may suddenly find yourself losing your best employees which are the driving force behind your success. And that’s before the U.S. department of labor (DOL) eventually gets involved to enforce labor laws in your state.
By paying employees on time consistently, you are essentially saying that you appreciate their contribution to the workplace and want them to remain employee at your business. This, in turn, will make employees want to stay in their jobs long-term. It also keeps you from getting in trouble for violating employment law.
When an employee’s pay is stable, they can spend more time focusing on their job and worry less about their financial security throughout the business day. Since they are not worried about their finances, they can be more present in the workplace leading to higher productivity and quality of work.
Payment leads to Retainment leads to Saving on Hiring Costs
When your employees are not paid on time, they are more likely to quit and find another employer. The resulting cost of that employee leaving due to not being paid ends up being far greater than merely paying the employee in the first place. Below are just some of the costs to consider if you were to lose an employee and have to find another to replace them.
- Lost productivity – It may take a new employee several months to years to be as productive as their predecessor.
- Training costs – This includes training on new procedures or software.
- Workplace culture impact – Other employees might be affected by the high turnover rate.
- Hiring costs – This includes job advertisements and the time spent interviewing and screening potential applicants.
- Attorney fees – if non-payment of wages grew to such a size that legal action was taken, you’re going to be looking at expensive legal fees to determine how much you owe for your former employee’s wage claims.
You also have to consider how the importance of employee benefits can change over the years. The pay rate you used to recruit your team ten years ago won’t be as competitive now, which means you might have to look at the full package you’re offering full-time employees – retirement plan, health insurance, social security, gross pay, and more.
And once your current employees find out what the new hires are getting offered? It can lead to a messy situation where jealousy leads long-time employees to feel undervalued due to not receiving the exact same premiums.
In short, employee onboarding can be a costly process in more ways than one, which means that getting employee payments right to improve retainment is worth it in more ways than one.
Calculating Employee Payment
Even though calculating employee wages can seem complicated, the process is a lot more manageable if you break it down into parts.
1. Determine Your Payroll Method
Will you do payroll in-house, or outsource it? If you or your human resources department are good with recordkeeping, you can save money by handling payroll yourself (using apps like Buddy Punch or QuickBooks to automate parts of the process).
2. Determine Types of Compensation
Are you going to pay hourly? Annually? By commission? Full-time or part-time? Considerations in this regard will depend on your business and management style, but for the most part businesses looking to grow aim for salaried employees working 40 hours a week.
3. Calculate employee hours worked
The big one. You need a way to keep an accurate log of how much time your employees are working so you can compensate them properly. While some business owners stick to manual methods like paper timesheets, most modern and savvy businesses use time tracking software to automatically calculate hours worked (along with using features such as time off tracking and employee scheduling). A tool like Buddy Punch can work wonders in this regard and can even improve employee accountability to ensure team members aren’t slacking or on social media during shifts.
4. Choose payroll schedule
How often are you going to pay your team members for their time worked? For the most part you’re either going to be looking at weekly, biweekly, or monthly payments. Like we’ve mentioned above, you can change this schedule if you need to, but you can’t change it often or you’re going to be looking at legal repercussions.
5. Handle payments and taxes
You’ve calculated how much your team members have worked (gross pay), now it’s time to handle tax withholding and deductions. Payroll tax, income tax, state tax and more – what you have to do to satisfy the IRS is going to depend on what state you’re working in.
6. Pay your teams
Whether you’re using payroll software like Buddy Punch to send out automated payments, or are using a more meticulous manual method, it’s time to make sure everyone’s been compensated accurately and thoroughly.
What if you can’t afford to pay employees on time?
Business has its highs and lows – and it’s possible you’re facing an extraordinary low that’s leaving you unable to meet your regular rate of pay for an extended period. If that’s the case, it might be time to seriously consider downsizing to the minimum workforce you can manage to continue operations.
It’s also possible that a change in the way you hire employees could be in order. You could look to hiring independent contractors or freelancers taking an hourly rate if that would better serve your current business model. You’d have these workers for a lesser number of hours than a full-time employee, but you wouldn’t have to worry about overtime hours or paying on a semimonthly schedule, and – if you hired competent workers – you may end up with more impressive results at the end of a workweek than before.
One downside is that you wouldn’t be the only client these workers served, and you might be subject to sudden price increases in between contracts as they have nothing stopping them from raising their rates on a whim.
It is clear to see how heavily not paying your employees on time can impact your business. You should always have a business plan in place to ensure that your employees are paid on time, every time. The benefits of doing so far outweigh the potential repercussions. So do yourself and your employees a favor and have a sound financial foundation in place to guarantee the success of your business. Additionally, using a payroll software like Buddy Punch will allow you to automate a lot of the payment process for your team members.
Try Buddy Punch Free
If you’ve decided that a payroll software would make it easy for you to pay your employees you can sign up for a 14-day free trial of Buddy Punch here. You can also book a one-on-one demo, or view a pre-recorded demo video to see Buddy Punch’s other employee management features (such as time tracking and employee scheduling).
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