Small Business Accounting: Q&A with Payroll Specialist and Tax Auditor

We have a special treat today. More than just explaining the fundamentals of computer-based accounting, I’m going to talk with Jim Miller, recently retired payroll specialist and tax auditor, who spent the last 10 years of his career as a small business accounting consultant. During his career, he’s enjoyed helping small businesses get on their feet and stay healthy and viable. He’s also enjoyed monitoring the changes that have occurred in the payroll industry.


Gladys Barnett: What’s the most important thing small business owners should know about setting up a payroll system?

Jim Miller: Have a system in place and start tracking and reporting all the relevant information you need from Day 1. All too often, business owners are so busy getting their companies launched and doing it a shoe-string budget that, while they’re keeping payroll records and they’ve had their employees fill out their w-4s, they’re doing it with any kind of payroll reporting system in place. Then, often near the end of the first month or quarter, when they need to start reporting, reconciling, and remitting their withholding amounts, things fall apart. In a worst-case, the business is set back months over something that should have never been an issue to begin with.


GB: What’s the most common mistake you see small business owners make when setting up a payroll system?

JM: Along with not having a solution in place from Day 1, I’d say it’s choosing a payroll system that speaks more to the vision they have for the future of their company, rather than their present-day payroll needs and operational priorities. The two things are connected in that way—not having a system in place and choosing one for the future. Some new business owners will procrastinate on making a decision, then pick a super-fancy system and try to implement it on the fly. So now they’ve overspent on a system that isn’t even meeting their basic payroll reporting requirements. At the same time, they don’t yet understand some of the basic details about their workforce. Here, one of the most common mistakes I’ve seen is not knowing which employees were exempt or non-exempt from overtime pay rules.


GB: So, what do you tell business owners about looking at their future payroll service needs, or is that not a concern at all?[laughs]

JM: Have a system in place that can grow with your business, but that doesn’t mean it has to be super-fancy. I’m sure I’m going to age myself with this comment, but in a lot of respects, new businesses really do have it easy nowadays when it comes to their accounting and payroll. Take a look at Advanced Micro Solutions. I recommend this payroll software because you can set up and manage your 1099 contractor and w-2 employee account forms for practically peanuts. Then, when your company reaches a point where it needs to start regularly reporting payroll for a team of employees, you can buy and quickly implement their add-on payroll software module….I’d also tell them that their future payroll needs should include a review—or audit—of their past payroll operations. You want to audit the system itself for any type of latent reporting errors or security concerns, but you also want to audit the payroll to detect and deter any fraudulent employees. Even modern-day accounting and payroll systems are anything but immune to employee fraud. I was reading just the other day about invoicing and wire fraud at Microsoft.


Jim Miller was gracious enough to sit down and give us his expert advice on small business accounting and payroll.

GB: What should business owners ask prospective payroll software and service providers before choosing a system for their company?

JM: I know there’s all kinds of fancy software solutions out there, but along with all the bells and whistles, ask a prospective payroll provider about local and state payroll regulations. Where this really becomes important is when you don’t have a dedicated payroll manager who’s looking out for these types of changes, but this is also a good way to choose among different third-party payroll providers. Especially if the company claims to be offering dynamic and personalized payroll support as part of their service package, ask them directly: What’s the most recent changes to local and state laws that would affect my payroll reporting? Were there any problems or problems updating the system when these new rules went into effect? Or they aware of any pending changes to the law that would impact your company’s payroll reporting for the foreseeable future?


GB: Jim, I want to thank you for the conversation. Any final thoughts you’d like to leave with the Best Computer Accounting audience?

JM: Just not that it’s never too early to start planning for and implementing accounting and payroll systems. Don’t try to over-invest in an expensive system right away, and you’re less likely to feel overwhelmed.