Payroll can be one of the biggest expenses for a business. Sometimes, business owners do not know that they are spending too much on the payroll. Generally, the payroll budget should be between 15-30% of business expenses.
But, salary budgets are not created equal. You may wonder how to calculate salary budgets for your business?
These are some tips.
1: Add Non-Payroll Expenses
The first thing that you need to figure out is how much your non-payroll expenses add up to. This allows you to take a good hard look at your payroll vs. other parts of your business.
With this, you may discover another part of your business that you spend too much money on. Or, you may find out that the only way to cut expenses is to cut payroll.
2: Separate By Position
This really comes in handy when you have a larger staff. Say you have 50 employees. Noting what field within the company each employee works in can help you determine how much you spend on each department.
If you spend $300,000 on four accountants but have a lot of mistakes and questions about your books for example, then you may want to figure out how to cut back or even potentially let go of one of your accountants. This gives you insight on how much you invest in each one of your employees and potentially how much they are worth.
3: Separate By Salary
The next way you can organize and determine your payroll is to separate by salary. This goes further than going from just the highest paid person in your company to the lowest paid.
Here, you should be noting if an employee is a salaried employee with benefits that you pay yearly, an hourly employee that you have to track hours of to see if they qualify for full-time, or freelancers that you do not have to withhold taxes from.
Knowing this will give you a better idea of how many benefits you are invested in and what way is the best course if it needs to be changed.
4: Track Taxes
If you hire W-2 employees, then you are going to withhold taxes from their paychecks. You will have to pay for social security, Medicare, and unemployment tax for each employee that you have on your payroll.
Knowing what the tax laws are, how much you need to withhold for each pay bracket, and tax benefits are crucial to managing an efficient payroll. A lot of smaller businesses even have to outsource this service with consulting service companies for payroll management like Ignite HCM.
Having accurate numbers written down for taxes can make or break an accurate budget, potentially keeping your company out of trouble with the IRS.
5: Look At Benefits
Finally, take a look at what employee benefits, if any, that you have to account for on your payroll. This can be things such as health insurance, 401K, stock options, bonuses, and more. If your company offers these, keep track of how much is spent to provide them and see if you can justify the expense.
Learn More About Salary Budgets
These are just five of the ways that you can make salary budgets. If you follow these, your company will be on the right track and you will have a much better idea of where your business stands.
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