Checklist: Setting Up a Payroll System For Your Small Business
As a small business owner, you need to determine how to best set up and manage your payroll system - whether you have just hired your first employee or you are planning to hire in the near future. Payroll can be a complex process governed by legal obligations that affect you as the employer, and can lead to penalties if not handled correctly. This checklist can assist you in the planning and set up of your small business payroll.
Planning your Payroll System
In order to begin the payroll system planning process, you will need to determine the following:
- Will employees be paid an annual salary or hourly based on time sheets or time clocks?
- Will your employees be paid weekly, bi-weekly, bi-monthly or monthly?
- Will paycheque be processed directly into employee bank accounts or by cheque?
- What other payments, deductions, and employee benefits need to be factored in? (e.g. RSP contributions, healthcare benefits, long term disability, life insurance etc.)
- How will you account for bonuses, overtime or allowances?
- Will the payroll process remain in-house or be outsourced to an external vendor?
- If you outsource payroll, which parts of the process will be owned by the external vendor?
- Payroll requirements planned
TIP: If you have more than 3-5 employees you may want to look at using a simple software accounting solution that includes payroll functionality in order to automatically prepare your payroll in-house and avoid costly outsourcing fees.
Establishing Policies and Procedures
Draw up a payroll policy and procedure document that includes the following to cover all your legal obligations:
- The timing of paycheques (e.g. weekly, bi-weekly, or monthly)
- How new hires, terminations and pay changes will be submitted to payroll
- Who can authorize schedule changes, overtime pay, changes to pay rates/salaries
- The rules for payment during work absences (e.g. sick days, holidays, maternity/adoption/paternity leave)
- The definition of overtime for hourly employees
- Safety and workers' compensation policies
- Vacation pay accrual calculations
- Any other applicable provincial requirements
- Payroll policy and procedure document drawn up
TIP: Using a software accounting solution that includes payroll and HR functionality can automate many of the processes listed above - saving you time and money.
Assigning Payroll Responsibilities
Identify a point person who will be responsible for payroll. Even when an external vendor is used to outsource payroll, it is necessary to have a company liaison who can gather and double check the information that needs to be processed.
- Payroll responsibilities assigned