There’s this thing that soaks up 70.4% of your budget and most business owners tend to think of it as a burden. But have you ever considered that it generates data that can help you answer questions like, “Can we afford to hire?” and “Are my employees burnt out?”
We’re, of course, talking about payroll—digitized, cloud payroll specifically. If your payroll data is in the cloud, it can provide answers to a wealth of questions, right from your desktop. You just have to know where to look and what to ask.
Cloud payroll is a payroll management system that allows business owners, accountants, and employees to access and manage payroll data anytime and anywhere with access to the internet. It’s more secure and convenient than running programs on your computer and storing data on a local server or hard drive because you don’t have to worry about upgrades, backups, or running out of storage space.
Most payroll providers now offer cloud-based services. It’s quickly becoming the standard due to the variety of benefits, including:
But, of course, the real benefit–and this isn’t top of mind for most owners–is the data.
Payroll data tells you a great number of interesting things about your business. For example, it can tell you how efficiently you’re spending on personnel, say, via overtime or expensive contractors. It can also suggest whether your hiring troubles are compensation related. For instance, are you offering benefits that are competitive? Can you afford more competitive benefits?
With cloud payroll, these answers are available on the fly, from your computer. Though, for really lucid insights, it’s a great idea to talk to your accountant. They can combine payroll data with sales data and answer even more advanced questions.
Don’t have a payroll system today? Learn more by signing up for Gusto on the App Market.
Knowing whether you can hire at all depends on knowing what you actually pay. Articles online often tell you to use the rule of thumb—add 20% onto the salary to account for benefits. But what if your average is different? What if you get a great deal on some benefits, there’s a lot of overtime among shift workers, or you haven’t factored in payroll taxes?
With cloud payroll, you can log in to see for yourself. Add up actual payroll totals, including payroll taxes, retirement contributions, health stipends, and other benefits, and determine the true figure for each of your roles.
Burnout is a massive problem among small businesses, and burnout has telltale signs. According to Gallup, burned-out employees are 63% more likely to take a sick day. If the average American worker takes just five sick days per year (which is low by international standards, and a problem unto itself), and yours are taking far more, it’s a hint that burnout may be at play. If combined with high turnover and generally low morale, it’s a near certainty.
The proper way to use this information is to identify employees who are taking all their sick days and have a friendly check in. Are they doing alright? Also look at those who aren’t using their vacation time so you can encourage them to take time to recharge — both physically and mentally.
Employees who are “star performers” tend to earn 4.6% more than their peers. So, they might cost you some money. Yet they are also 400% more productive, according to research by McKinsey. (In the knowledge sector, that gap expands to 800%.)
What does a 400% difference look like? In hospitality, it could mean one Barista brings four times as many customers back each week because they learned everyone’s drinks. In automotive, it could be a mechanic who figures out day-long puzzles in two hours.
Look at your payroll data and ask not, “Can we afford star employees?” but rather, “Can we afford not to have a few of them?” If your salaries are merely equal to those you find on job review sites like Glassdoor, and you know applicants are using that site as a reference, you may not be standing out.
High turnover is bad for business. It’s costly–both in the time needed to retrain people and the morale of everyone else. A few people exiting can prompt others to at least look around.
Luckily, the answer to this question starts with payroll data. Look up the average tenure of your employees for each group, region, or store. Wherever you find numbers that are very high or very low, investigate. Is one store keeping people for twice as long? Find out what that manager is doing. Is one category of employee tough to retain? Conduct interviews to find out why.
(Also consider that the exit interview is perhaps misplaced—why not conduct it before they’re even thinking about exiting?)
If payroll is a big portion of your budget, small changes there can have big impacts. The mindset here is not, “How can we pay people less?” As we discussed in point number three, fair pay is an investment. Rather, the right question is, “Where are we spending money that we don’t see a return on?”
One common example is overtime. Employees may love it, but error rates skyrocket after someone’s been working for more than eight hours. Are more mistakes costing you more business than the overtime is worth? And could overtime be putting you at risk for fines? As HR group SHRM points out, overtime rules vary by state and fine-worthy issues are common.
Specifically, you may want to look for:
This is a question for which the answer is always, “It depends.” But it depends, largely, on how much those roles actually cost you–or, on what the laws are in that state. In California, for example, the 2020 AB5 “freelancer” law stipulates that if a 1099 contractor behaves like a full-time employee, they are entitled to full-time pay and benefits.
Look at your cloud payroll data for what’s known as a total cost analysis—add up all the extra costs you don’t normally think about to calculate the hourly cost of a W2 and a 1099 employee. For W2 employees, consider employment tax, benefits, etc. For 1099 contractors, count the hours full-time employees have to spend managing them, as well as the cost of higher turnover.
There’s a big difference between tax avoidance—reducing your tax burden through legal means, like write-offs—and tax evasion. Evasion is knowingly not paying taxes, which is a crime. We are advocating the former.
Your cloud payroll data can help you spot opportunities to maximize retirement plan contributions, select a more tax-advantaged business structure, or claim valuable tax credits, all of which can reduce your overall tax burden.
If you haven’t yet switched to a cloud payroll solution, it may be time. It’ll put all of your payroll and employment data in one place. It can help you spot trends, plan for the future, and better position your business for success. And now that you know what questions to ask, there’s nothing left to do but go have a look.
This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer or HR expert for specific guidance.
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