Small Business Smarts: What Every New Business Needs to Know About HR and Payroll
Part of a series | Small Business Smarts
As a small business owner, understanding the essentials of HR and payroll is crucial as you prepare to expand your team. In this episode of Small Business Smarts, Victoria Jordan, founder and executive creative director of Pureworks, LLC., discusses the interconnectedness of payroll and human resources (HR). Topics covered include key considerations when hiring your first employee, including classification, evolving work trends, and wage differences. The takeaway: by being prepared and utilizing the right resources, you can create a compliant and supportive work environment that fosters business growth.
As a small business owner, the journey to expanding your team can be thrilling yet daunting. Preparing for this transition involves understanding the intricacies of HR and payroll processes. Jordan's recent conversation with Erron Stark, General Manager / Vice President – East Region, ADP Small Business Services and Roll, offered valuable insights that can help you navigate this critical aspect of your business.
The relationship between payroll and HR
At its core, payroll and HR are interconnected components of business management. Payroll is often viewed as the "have to" aspect—what must be done to ensure that employees are paid accurately and on time. Conversely, HR encompasses the "how to"—the strategies and knowledge you'll need to maintain compliance with employment regulations and understand the benefits you provide to your employees.
Key considerations when hiring your first employee
When you're ready to bring on your first employee, it's crucial to classify them correctly. Employees can either be traditional W-2 employees or contract workers, and each classification carries different implications for taxes, benefits, and compliance.
1. Classify personnel correctly: The nature of the employment relationship will determine a host of regulatory requirements, so understanding these distinctions is vital.
2. Stay informed on evolving work trends: The rise of remote work and the gig economy has significantly changed the landscape of employment. Consider where your employees will be living and working, as varying state regulations can affect everything from employment insurance to tax obligations.
3. Understand wage differences: Minimum wage laws can differ significantly based on location. For instance, your company may operate in a region where the minimum wage is $15 per hour, while in another state, an employee working remotely might earn $17 per hour. It's imperative to remain compliant with local standards.
The importance of preparedness
Stark shared a wise saying he recalled his father saying: "Measure twice and cut once." This principle underscores the importance of thorough preparation before implementing payroll systems. By taking the time to ensure everything is set up correctly from the beginning, you can more likely avoid costly mistakes and focus more on scaling your business in the future.
The bottom line
Effective management of HR and payroll is not just about compliance; it's also about establishing a culture of trust and support within your organization. By understanding the synergy between these two fields, you can create an environment that promotes employee satisfaction and business growth.
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Video transcript of "What Every New Business Needs to Know About HR and Payroll"
Victoria Jordan: I don't have employees yet, but I'm getting closer to that point and I want to be prepared. It's time for me to investigate what I know and don't know about HR and payroll. So I'm going to reach out to Erron Stark at ADP for some advice.
Jordan: Hey, Erron. As a small business owner, I'm starting to compile a list of things I need to learn about HR and payroll, and I wanted to ask an expert about what I should keep in mind.
Erron Stark: Payroll and HR tend to go hand in hand. The payroll is more of the "have to," right? What do I have to do to make sure that I get my people paid on time and accurately? The HR is more the "how to." How do I make sure that I am staying compliant with all the regulatory aspects of running a business, along with the benefits that I might have to provide to my employees?
Jordan: That makes sense. And I love that you broke it down that simply—the have to and the how to. What else might I need to know?
Stark: Well, it starts on day one. The second that you're ready to bring on that first worker, you're going to have to classify them as either a traditional W-2 employee or a contract employee. And those will have their own implications. But over the last five years, there has been this growth of things such as remote work or what you might have heard too, the gig economy.
Stark: Things like state employment insurance and income tax will vary based on where your employee may live, where your company is located, and then the state that they actually conduct the work in. And I'll take it a step further; things such as minimum wage, based on where your company is, could be $15 an hour, but where that employee that you just hired remotely or could be part-time working in a different state could be $17 an hour.
Jordan: That's really good to know.
Stark: Yeah, my dad used to have this great saying, which was "Measure twice and cut once," to make sure that you're avoiding costly mistakes. When it comes to setting a payroll for your organization, ensuring that you measure twice up front will then allow you to focus so much more on growing your business tomorrow and in the years to come.
Jordan: Thanks so much, Erron. This is so helpful. The moral of this story is that managing compliance is easier when HR and payroll work together. And for tools to help bring that all together, visit ADP.com/SmallBusiness.
