Strategies for Small Businesses to Manage Payroll Without a Dedicated HR Department              


How do small businesses handle payroll and HR issues?

  • Technology
  • Training
  • Seeking advice from consultants or lawyers
  • Creating clear procedures and policies
  • Strategies to manage payroll

Up to 88% of employees have worked for a small company with no HR department or dedicated staff member. Half US employees say the lack of an HR department contributes to a toxic workplace culture.

However, 43% of people working in small companies with HR departments don’t feel they can confide in these employees. According to a survey by TriNet Zenefits, just 42% of small businesses have an HR policy manual in place, compared to 82% of big companies.

How do small businesses handle payroll and HR issues?

Outsourcing HR: Some small firms outsource payroll and other HR functions to third-party providers. These services can also handle tasks such as benefits administration, letting the company focus on its main operations. Outsourcing payroll can help save time, reduce administrative burden, and ensure compliance with payroll tax regulations. A recent survey revealed that over a third of all companies outsource some or all of their HR functions, including payroll at 56%, recruitment at 49%, and benefits at 40%.

Using technology

Many small businesses use technology and software to streamline HR department processes. This can include an hourly pay calculator, more advanced software to manage payroll, performance evaluations, employee scheduling, and time tracking.

Offering training

While 95% of businesses with over 100 employees offer training, that percentage is less than 50% for businesses with four or fewer employees. Those that do provide training spend more per employee and trainee than bigger businesses. On average, small businesses spend almost twice as much on employees and 3.5 times more per trainee. Training employees on payroll processes and procedures ensures continuity in payroll operations, especially in staff turnover or absences. Having backup personnel familiar with payroll tasks helps prevent disruptions and errors.

Seeking advice from consultants or lawyers

Small businesses might seek advice from HR consultants or labor law experts when faced with a complex HR issue.

Creating clear procedures and policies

Small businesses can manage issues more effectively by establishing clear HR procedures and policies. These may include ensuring legal compliance, producing employee handbooks, or establishing disciplinary procedures.

Strategies to manage payroll

A pay calculator will ensure you calculate payroll accurately based on records of employee hours worked. Implementing a standardized system to track employee time is an excellent strategy. The rest are detailed below.

Automate withholding tax

Use payroll software to automate tax withholdings for federal, state, and local taxes, as well as other deductions such as retirement contributions and healthcare premiums. This helps ensure accuracy and compliance with tax laws.

Set up direct deposit if you haven’t

Direct deposit provides convenience for employees and reduces the risk of lost or stolen paychecks. The American Payroll Association’s 2022 “Getting Paid in America” survey showed that over 93% of the companies surveyed were using this payment method. Just 3.6% are still using paper checks, followed by prepaid cards, payroll cards, and other methods.

Set a payroll schedule

Set a consistent payroll schedule that aligns with your business’s cash flow and ensures timely payment to employees. Communicate the payroll schedule clearly to employees to manage expectations and avoid any confusion.

Avoid overtime or at least monitor

Keep track of employee hours worked, overtime hours, and overtime pay rates to ensure compliance with overtime regulations. Implement policies and procedures to manage overtime effectively and minimize costs. A 2023 study by Advanced Time on manufacturing businesses found that a 10% overtime increase led to a 24% decline in hourly productivity. In fact, employee output plummets after working more than 50 hours a week. According to a study by Stanford University, any hours worked beyond 60 a week are completely unproductive.

Stay abreast of changes

Stay current on changes in payroll laws and compliance regulations that may affect your business. Subscribe to relevant newsletters, attend training sessions, or consult with a payroll expert to stay updated on payroll best practices.

Review payroll reports

Review payroll reports regularly to identify any discrepancies, errors, or trends that may require attention. Payroll reports can help you monitor payroll expenses, track employee attendance, and ensure accuracy in payroll processing.


  • Small businesses either don’t have HR or don’t trust it
  • They manage payroll with technology, training, and consultations
  • Actionable steps to manage payroll effectively



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