Payroll Management: What It Is and the Benefits of Using It In Your Nonprofit Organization

Payroll management

Staff members must get compensated for the time they spend contributing to the organization, payroll management describes the process that executes that. Payroll management is not as simple as just paying employees, though. The process also includes withholding taxes and other deductions. Payroll taxes include income taxes, social security tax, and unemployment tax. Other deductions may include but aren’t limited to, insurance, garnishments, and flex-spend accounts.

Any company with more than one employee must have some level of payroll management in place. Nonprofit organizations are no different, in that they require some form of payroll management. Documents regarding pay and deductions are kept in employee files by the Human Resource (HR) department or the staff member in charge of handling HR activities. Having an organized payroll management system in place helps an organization produce required reports for government agencies and compile financial statements.

How To Choose The Right Payroll Software For Your Nonprofit

Many organizations choose to automate their payroll with software. Payroll management software eases the burden of calculating and documenting tax withholdings on the organization. Using the right software for payroll management will ensure that payroll taxes are paid on time and that the system reflects any recent changes in the payroll tax laws passed by the Federal or State governments. Choosing the right software will benefit the nonprofit in the future, so there are many things to consider when shopping for payroll management software.

The first thing to consider is the organization’s payroll management needs including the organization size, the number of employees, employee benefits, the budget, tax filing requirements, and if the software will stand alone or need to integrate with the current accounting software. Beyond the organization’s details, you’ll want to learn about which features different programs offer and how they can be directly applied to your nonprofit. Checking the accounting software provider at your organization or talking with your accounting service is recommended when selecting payroll management.

Tips For Ensuring Accurate And Timely Payroll Processing

Payroll is an essential function of a nonprofit, so it is worth making efforts to achieve the most efficient process possible. Here are some tips for making sure payroll is processed correctly and on time every period:

Have An Efficient Method For Recording Time

There are different ways to document the hours of each employee. Having a consistent and effective method will help keep payroll processing accurate. Many software programs allow employees to enter the time they’ve worked right into the program, so it is already totaled when it is time to process.

Make Sure Your Employees Are Classified And Entered Correctly

Not all staff members are created equally. It is important to have accurate information so that there are no delays when it is time to process payroll. Make sure it is noted in each employee’s file and correctly entered in software if they are employees, contractors, overtime-eligible, salary, or hourly. Also, be sure that pay rate changes are noted as soon as they go into effect.

Verify That Employees’ Personal Information Is Current

Aside from their staff classification, it is important that the nonprofit have the right Social Security Number (SSN), address, and birthdate for every staff member on the payroll. This doesn’t have to be done by management or HR. If a payroll management program is used, employees can log in and verify their own information.

Best Practices For Tracking Employee Hours And Absences

As discussed, there are many options for tracking employee hours. The key is to be consistent. It is imperative that all employees of the nonprofit follow the same method for recording the time they’ve worked. Some organizations choose to track payroll manually, through timecards using pen and paper or a spreadsheet like Excel. These can be kept throughout the period by each hourly employee and sent to the person in charge of payroll at the end of the period. Another option for many organizations is for employees to enter their time directly into the payroll management program. Most software allows employees to record their own time and prompts management approval before processing.

Strategies For Reducing Costs Associated With Payroll Processing

Nonprofit organizations track expenses carefully and make sure that the costs required to operate are as low as possible. This allows more money to go towards the nonprofit’s mission. However, payroll is an area where certain administrative costs can not be avoided.

With some planning, there are ways for any organization to reduce payroll costs and still manage employee compensation effectively.

  • Use updated HR technology
  • Consider outsourcing payroll
  • Make pay dates less frequent
  • Encourage employees to choose direct deposit

Frequently Asked Questions About Nonprofit Payroll Management

Do I have to use software to process payroll?

No. It is possible to track employee time, calculate payroll wages and taxes, and issue manual checks. However, most companies find it saves a lot of time and money to automate the process with effective software.

If employees can log in to the software, will they see the wages of others?

No. Software that allows employees to log in will only allow that employee to see their personal information, time, and payment history.

I use Sage Cloud Accounting Software to do my accounting, will I have to manually enter my payroll data there too?

Even if you are using separate software to process payroll, the accounting software should be able to integrate with your current accounting software so that General Ledger and Financial Statements stay current.

Final Thought

Payroll is unavoidable, but it doesn’t have to be painful. There are ways to expedite the process so that payroll is processed accurately and on time, every period. If you are considering a new or upgraded payroll management system, check with your accountant or contact JFW Accounting Services today for some expert guidance.


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