8 Simple Steps To Pay Employees Of Small Business

. 7 min read
8 Simple Steps To Pay Employees Of Small Business

One fine day you decided to turn your passion into a profession and get started on the journey of entrepreneurship. You have finally turned your dreams into reality and are running a successful small business. It’s now time to expand your business, and so you have hired or are thinking of hiring employees. But the biggest hurdle is that you have no idea how to pay employees as the owner of a small business.

Business ownership presents the constant challenge of balancing things together. If you are a small business owner, managing all responsibilities yourself, you will relate to what we are saying. So stop scratching your head over how to pay employees and read this simple step-by-step guide to paying employees of small businesses.

Before we jump into the step-by-step process, first let us understand what are the different types of compensation and how much you should pay your employees.

Types Of Compensation

There are three ways you can compensate your employees.

1. Hourly Compensation

Employees are paid hourly compensation depending on the number of hours they work each week depending on a predetermined rate. Hourly compensation is generally preferred for part-time employees. Or if you are yet to figure out how much employees need to be paid and what your budget is, this should be the ideal compensation type for you.

cutout of a man climbing on stairs reading salary

2. Salary Compensation

Salary means you pay a fixed amount typically every month but it is expressed as an annual sum. This type of compensation is given to full-time employees. A fixed salary includes components like basic pay, dearness allowance (DA), and other special allowances. Salary should be paid depending on the employee’s education, previous work experience, and the amount of time they will be working per week or month.

3. Commission-Based Compensation

The commission-based payment system involves paying an employee based on the number of sales an employee makes and is usually based on a percentage of total sales. So you have to pay them basic compensation. It can be hourly or salary plus the commission they earn through sales. Commission-based compensation is preferred for sales and marketing job roles. This also motivates employees to achieve weekly or monthly sales goals.

Now that you are clear about the types of compensation, let us find out how much you should pay to employees.

How Much To Pay Employees?

You should pay employees according to industry standards. You should determine the payment structure of employees depending on their education and previous work experience.

Here you will need to do market research on how to pay workers. Also, talk to people in the same business like yours to seek guidance on how to pay employees in a small business.

Deciding the type of compensation your business can afford and how much to pay an employee are the major parts of payroll. As we are now clear about it, let us jump into a step-by-step guide to paying employees of small businesses.

8 Steps to Pay Employees of Small Businesses

Paying your employees involves collecting their personal details, defining pay policy, distributing payslips and tax worksheets, and tax filing. This might seem like an intricate process, but we have simplified it for you in this simple step-by-step guide.

Step 1: Onboard employees

If you are a small business and have few employees, this will be an easy step. You have to make a list of employees. Define their job roles and pay scales.

Step 2: Define your payroll policy

Even if you are a small business, having a predetermined payroll policy will be useful. Your employees will have a clear idea about how much they will get paid. These policies should include payroll schedules, payroll methods, attendance, and leave policy, employee benefits policy, etc. This should also include what you are going to offer employees from the available statutory components like LWF, PF, ESI, IT, and PT.

Step 3: Gather employee details

This is an important step in the payroll process. You would want to collect important and sensitive information from your employees. Information like their PAN, bank details, address, previous work details, etc. Gather all the information and documents needed at the time of joining to avoid the hassle later.

Step 4: Validate employee details

You should be careful with this step. Make sure you are validating all the details provided by your employees. You do not want to be penalised for providing false information about your employees with the tax department.

Step 5: Calculate payroll

In this step, all the employee details are fed into payroll processing software. Input all details as per your payroll policy. Consider deductions and taxes. Calculate how much you need to pay your employees.

This is a time-consuming process, so here we recommend using apps like OkStaff. It saves a lot of time from the manual methods of calculations. OkStaff removes the need to go through software, multiple ledger books, and other costly tools. This app will also help you check the history of staff attendance or salaries.

Step 6: Disburse employee salaries

Now that you have calculated the salaries, it’s time to disburse them. You can choose to pay by cheque or direct deposit to the bank account. If you have very few employees you can do it manually. Otherwise, you can opt for payroll software.

Step 7: Pay statutory dues

It is mandatory to deduct all statutory deductions like TDS, EPF, and ESI at the time of processing payroll. You then have to remit the amount to the respective government agencies within the due dates.

Step 8: Distribute payslips and tax computation sheets

This step involves distributing payslips and tax computation sheets. If you are using OkStaff, you need not worry about this step. OkStaff is a smooth mobile-based solution to manage all your staff and salary-related functions in the blink of an eye.

This simple payroll still might seem intricating to you. So here we would like to suggest some tips to make it a piece of cake for you.

Tips For Easy Payroll Process:

1. Collect accurate employee information and forms

Make it a habit to collect all the documents and details at the time your employee is joining the company.

2, Determine the frequency of payroll

Decide at what time intervals you will be releasing payments to avoid last-minute hassles.

3. Know the payroll penalties

Make sure you are following all the industry standards so that you can avoid any penalties.

4. Keep accurate records

Make sure all the records of an employee’s leaves, overtime, and commissions are accurately maintained.

salary word on stack of coins

5. Choose the right software

Now you might have realised payroll is a time-consuming and slightly daunting process. So the right software should be easy to operate, it should automate the process, and should be accessible to employees.

All these tips should help you sail through this important part of running a business smoothly. Since small businesses have smaller employee counts, they cannot afford to have a standalone department to handle all payroll processes. Keeping track of hourly, daily, weekly, monthly, or even annual wages and salaries can be hectic if it needs to be maintained manually or with a pen & book. Keeping this in mind we have designed OkStaff.  This application is the next step towards Digital India, brought to you by OkCredit.

We hope this guide was helpful. If you have any questions regarding this feel free to ask us.

Also Read:

1) How to do a Perfect Audit in your Business?
2) How to Make Good Money with Online Commission Sales?
3) How to Stay Updated with Business News if You are a Small Business Owner?
4) Top 5 Strategies to Create a Zero Waste Business

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Q. Can small businesses do their payroll?

Ans. Yes, small business owners can do their payroll process using apps like OkStaff.

Q. How much should I pay for a part-time employee?

Ans. You should determine this depending on industry standards and the budget you have.

Q. What should I look for in payroll software?

Ans. The right software should save you time, it should be easy to operate, and should automate the process of calculating salaries.

Q. How much does the OkStaff app cost?

Ans. OkStaff is a free app.

Q. What is the best payment method for employees?

Ans. You can either choose to pay by cheque or direct deposit to a bank account. A lot of people prefer the direct deposit method.

Q. Is it required to pay for payroll software? If so, how much do they cost?

Ans. No, not all payroll softwares require purchase or subscriptions. A lot of payroll softwares and apps are free to use.