How to Do Labour Costing for Small Business

As a small business owner, a lot falls on your shoulders, including handling the labour costing for everyone who works for your company. It is crucial that the labour costing for small business is done correctly, as correcting it can use up valuable time and can be a huge hassle.

Incorrect labour costing will cause problems with employees, and could also cause problems with the government. Whereas large companies have entire teams devoted to labour costing, your small company may have but one person taking care of the bulk of the work.

Here are nine steps on how to do labour costing for small business correctly:

Step #1: Talk to the CRA

If you’re just starting your small business, the first thing to do with payroll is to open an account with the CRA (Canada Revenue Agency). This is a crucial step in making sure your business is operating legally.

Step #2: Input business info

You’ll also need to make sure you have all of your staff members’ information on file, including their Social Insurance Number, their full legal names, their other personal information, and the TD1 form for the federal government, as well as the provincial government for the province you are operating in.

Step #3: Invest in labour costing software

We have the technology, so use it! Investing in a good labour costing software to help you organize the data and keep everything in order. Each software has unique features which you should look into during the selection process.

When you’re a small business, you don’t need a program that can manage thousands of files at a time. You may be able to get a discount or even some free features if the number of employees on your payroll is under a certain number. This is a good incentive to shop around a bit to not only find a payroll program that will do everything you need to do, but that may also be beneficial specifically for you as a small business owner.

Step #4: Switch to online payroll

As a small business, it is simple to do payroll by hand. As your business grows, there will be a need to switch your payroll to a digital version. You have a decision to make when it comes to how your payroll system is hosted. Some are software that can be installed onto a certain system, accessible only that way. Others are cloud based and accessible via the internet, meaning you can access your payroll anytime, anywhere, hassle free.

Some payroll programs even give you the bonus of an app. The app allows employees to log into the system to punch in, and it allows administrators to access payroll information on the go through their mobile device. It is a really neat added feature that some payroll programs have to offer.

Step #5: Select a payment method

You can pay your employees in two ways: via cheque or direct deposit. Some software will support one or the other, but some can support both, meaning it is up to you to decide what is easier and what makes the most sense for your business.

Step #6: Track the time

When you do labour costing for small business, you’ll need to track the time. There are several different methods for tracking the time your employees work. You can base it off of shifts – expecting them to start at a certain time and end at a certain time. This method either works off of the honour system, or requires some form of management to ensure that people are showing up and doing their time.

An alternative is to have a system for clocking in and out. This can be done by a machine, a physical punch card, an app, and it can be supported by the software that you choose for your labour costing.

Step #7: Record the payroll

When you do labour costing, make sure to keep track of everything you pay out in a systematic and organized way. At the end of the fiscal year, you’ll have to do reconciliation on everything you’ve paid out.

You should have all of these records readily available in case you need them, or in case you are audited. It also helps to have them organized or on file in case an employee ever questions their pay.

Step #8: Calculate payroll deductions

There are a number of different deductions that you need to take off of your employees’ paycheques as per government regulations. Provincial and federal taxes should be deducted from each individual’s paycheque, based on the amount they made. In addition, you may be deducting payments for benefits, pension plan, or unemployment insurance.

Step #9: Automate the payroll

Your goal, even as a small business, should be to try to automate as much of the process as possible. There is no need to give yourself a headache over your business’ labour costing, when it can all be very easily automated. Automating the process also allows you to reduce the amount of time needed to deal with it, meaning you don’t have to waste your own time, and you don’t have to spend a lot of money to pay someone to do it.