Why staffing agencies struggle with payroll costs

Paying employees regularly, on time, is what allows you to retain a reliable workforce, which keeps your staffing agency in business. Payroll costs take up a high portion of your staffing agency’s total expenses, making effective management of payroll activities even more critical.

Here are some of the leading reasons that staffing agencies get into trouble with payroll costs, and the lessons to be learned.

Failing to use a payroll funding service
When you don’t manage your finances effectively, payroll costs and issues add up quickly. Working with a professional payroll funding provider can help ensure you are paying employees on time, so late payment doesn’t cause problems for your organization. Some payroll funding providers can also assist with payroll administration, whether you need help calculating and cutting checks or invoicing clients.

Failing to have checks and balances in place
Having one person solely responsible for all of your payroll duties can put your business at greater risk for employee fraud and increase the likelihood of human error. If you break up responsibilities in the department — with different people handling timekeeping, payroll authorization, processing and reconciliation activities — you’ll have a system of checks and balances to mitigate the risk of fraudulent activity. Cross-training employees will also ensure that payroll runs smoothly when someone is out sick or on vacation.

If your agency can only afford one employee to manage payroll costs and duties, make sure you have a good understanding of the process and can take over if necessary.

Failing to keep up with state laws
The methods of withholding payroll taxes, child support and garnishment wages vary dramatically from state to state. If your agency started small and local, it’s possible that you’ve only been adhering to the payroll and HR laws in your home state. Researching local and regional payroll laws before setting up business in other states will help you avoid penalties, fees and potential lawsuits that can result from noncompliance.

Failing to retain documents
Chances are, not all of your payroll records are electronic. But you don’t want to keep paper files any longer than necessary, or you’ll end up leasing storage space for records you’ll probably never look at again. Check with your accountant to determine when you can safely purge your file cabinets and keep track of any paper records — timesheets, tax forms, canceled checks, etc. — for as long as various tax agencies demand.

Failing to pay taxes in a timely manner
It can be tempting to hold on to payroll withholding taxes just a little too long, especially when finances are tight. Although this provides an easy cash source, ignore the temptation. Being even a little late with one payment can have a cascading financial effect for your organization. The IRS isn’t sympathetic to companies’ cash flow problems when the solution is delaying tax payments, and you’ll earn deposit penalties and interest that can be significant. Meanwhile, business taxes must be paid to state, municipal and regional tax authorities on varying schedules. The best course of action is to stay organized and always pay on schedule.

As a full-service payroll funding, invoicing, payroll taxes and credit monitoring resource, TemPay enables staffing agencies to focus on growing their businesses.