Payroll is one of those areas that you may not think about until an employee doesn't get paid. And then all hell breaks loose. The group chat blows up, text messages are flying, employees are pissed, and trust is broken. In a small environment, where trust is a currency, you cannot have that. Payroll is a cornerstone of the employee experience. While employees may love your mission and they may love showing up, they also expect to be paid. And when they are not, we are messing with their livelihood. Today, I am bringing in my payroll and operations manager for Acacia Penelope Angulo. She and her team are the ones who make payroll happen for our clients. They run weekly semi-monthly biweekly global payroll across all of our clients. They do it every single week, and they make it look really, really easy. In this episode, we're going to cover a few things: mistakes we see small employers make when we first come in and start auditing their payroll. We are going to tell you the tech that we recommend based on your size. So what HRIS system do we really recommend based on the size that you're at? And we are going to give you a few things you can do today to audit your payroll, look at your payroll practices and make sure that they are on track. So here's my question for you. Is your payroll running like a well-oiled machine, or is it causing you trust issues? If you're even a little unsure, keep listening. All right. Before we dive into the payroll horror stories and hero moves, let me introduce you to the woman who makes it all happen behind the scenes here at Acacia and oftentimes saves the day before we even know there is a problem. Penelope is our payroll powerhouse. She is extremely sharp, very detail-oriented, all those things that you want in a payroll person. And she makes the complexity of payroll look really easy. So Penelope, why don't you introduce yourself? Tell us what you love about working here at Acacia and if payroll were to disappear tomorrow and no longer be a career option, what would you be doing? Thank you for that introduction, Sabrina. So I am the payroll integrations manager at Acacia and I have been working with Acacia now for two years. And something that I love about working for Acacia is all the the diverse clientele that we have. We work with startups and, uh, digital marketing companies. So that is always, uh, interesting and there's never a boring day. Here. And if payroll were to disappear, I think I would be something in finance, something with numbers, something that will give me those checks and balances somewhere or another. Awesome. Yeah, you are definitely that detail across your eyes, dot your T's person. So all of that makes complete sense to me. Yeah. If our listeners have somebody who is managing their payroll well, they may not realize how complex it is because payroll is much more than just hitting a button on payday. And in a small business, like all things in small businesses, payroll is very personal. Every dollar, every deduction, every delay, it lands differently when you are 10, 20, 50 employees versus a much larger organization. And then payroll is not getting any less complex. It's getting harder.  You have state-to-state tax changes and constant compliance issues. That you have to keep up with. If you are not paying attention, it can absolutely feel like a landmine. So Penelope, why do you think that payroll is so high stakes in a small business versus a larger one? Yeah, I think in a small business, payroll isn't just a factor of function. It's your, it's part of your strategy, right? So you're not processing payroll just for a number. You are collaborating with these people on a day-to-day basis. And every dollar counts for both the employee and the company as well. Uh, while a lot of us have passion for what we do, I think we are all in this, uh, for the money at the end of the day. And if there are payment delays or there is no trust between employee and business, that creates friction and tension with, uh, their experience too. Yeah, absolutely. And as I said before, those things are felt so much greater in a small environment than they are; you can absorb that in a larger environment much easier. Okay. So now let's talk about where it all goes sideways, because when new clients come to us, especially if they have been DIYing their payroll or maybe they thought that their system or their previous payroll partner was handling everything well, we often find that that may not be the case. Um, and spoiler alert, those things that weren't being handled well can be really expensive if wage and hour comes knocking. So Penelope, share with us some of the biggest gaps that you see in payroll processes when new clients come to us. Yeah, I think, um, I can think of three just at the top of my mind. The number one would be employee misclassification. Worker misclassification. So what, how are you classifying those independent contractors and those W2 employees? And when like you mentioned, wage and hour comes knocking at your door, that's going to be a very heavy penalty and then it's going to expose you to other major audits as well. The second one would be the manual processes of payroll. How are you manually tracking time cards? How are you doing everything on a spreadsheet? And that creates this reactive payroll process every check date. So you have to have a plan. You have to have a process. You can't just take last minute requests every single time that you process payroll. And unfortunately, in a small business environment, that happens very, very often. And then number three would be the same as those time tracking processes, but when it comes to really strict states like California, for example, you have those meal penalty breaks, uh, the lunch break. How are you tracking over time? A lot of the companies don't even have the system set up properly. So if there is a Department of Labor audit, you're going to be in trouble too. Um, all of those things add up and they just create this snowball effect when the client comes up to us and tells us we have this audit coming up. We need to find a solution to that. Yeah. I always say that you are the queen of deadlines, putting deadlines in place for payroll so that we don't have those reactive practices. I know with clients, that's one of the first things that you always like to do is put those deadlines in place, make sure that we have really good, um, tight deadlines so that we are not being reactive and that we can make sure we're trying to capture as many things on a payroll as we possibly can. Okay. So a follow-up to that, Penelope, would be out of those, which one do you think surprises new clients the most when we let them know that this is something that we see they need to button up a little bit better? Definitely worker misclassification. Sometimes, especially if they're a startup company, because of the business needs, they go ahead and classify all of these workers as independent contractors. If they are probably in a different state that they don't want to register in, they go ahead and classify them like that because they don't want to pay those state taxes. And when we do an internal audit and we tell them, and show them also the check and balance with the, um, Department of Labor too, and tell them like, this is why everything's wrong and this is how how much you could pay in fees. We had a client that their penalty fee was 75,000. That's, it's, it's a, it's a big surprise for them. Definitely. And that client, that was one employee that was misclassified. That was 75,000. So it, the misclassification is definitely a big deal and it's one of those that, uh, you can't, um, feign ignorance. You can't just say, I didn't know. That's really not a legal defense. If they're misclassified, you are going to get fined and it's a huge penalty. All right. So here's what I think our listeners come here for, and that is the best practices. We know that payroll should not just be this practice in pushing a button on payday and crossing your fingers. So let's talk about the three specific areas that we know clients and anybody listening should really be focusing on when it comes to payroll and looking at best practices that would be systems, compliance, and employee experience. I'm going to ask you a few questions and ask you to weigh in on each one. Okay. Let's start with systems and processes. Everyone loves a good spreadsheet until it backfires. Uh, in episode eight of this podcast, it was an HR tech-focused episode, and I shared that I believe clients, and we always encourage clients to purchase an all-in-one system, an all-in-one payroll system, that has all of the modules in it. It's all integrated. It kind of becomes their true north. Uh, it's easy to integrate things like 401(k) or that kind of stuff into it. When it comes to systems, I want to know, first of all, do you agree with me on that statement about an all-in-one for small businesses? But then what else should, uh, people be thinking about when it comes to their system, their specific payroll system? 100 percent agree with that. Systems are not a luxury, especially in payroll. They are a necessity for any type of business. Small, medium, and large. Uh, however, contracting a system, getting all the bells and whistles, it's only half the job. We have seen a lot of clients as well that they purchase this huge beautiful packages with the systems, and they don't know how to implement. They don't know how to implement the workflows. They don't know how to implement the processes. They don't know how to establish discipline, for their operations. So yes, a system is very important, but you also need someone that understands the system and can create all of this workflows, can navigate all of the modules, and can understand and speak the language as well. Yeah, I think it's always surprising to us when we come into a client who has spent good money on a really big fancy system, and they're not even using like a third of the features. So they've spent all this money and they're not using all the features, or it's not integrated well, or it's not working well because it wasn't set up properly. So definitely first, glad that you agree with me on the all-in-one, but also that that's backend setup and making sure that you really are using everything as it's designed and using it in the best way for your business is where you're going to get the most bang for your buck. And save you time, which is what, of course, our clients and all small businesses, anybody managing HR and small business needs the most. All right. Now let's shift to compliance. It's a very non-sexy topic, but a necessary one, especially when we're talking about payroll. Deadlines are relentless. In our home state of California, laws are constantly changing or being added, or there's just a lot of laws that you have to navigate. So what are some compliance basics that our listeners or we share with our clients when it comes to their payroll processes? Yeah, that's an excellent question. So for in a heavily regulated state like California, compliance is only half the battle. You need to stay on top of your of your payroll audits. If that is the minimum wage requirements that change every year, the pay time of audits, your meal break penalties is your overtime being calculated correctly. So you have to subscribe to as many alerts as you can, or you can hire someone like us that will do all of the compliance checks and balances for you. But again, even if you have a third party doing all of the compliance for you, ignorance is not always a bliss, especially in a business, especially in a small business environment. So I love the plug for us handling their payroll, of course. And again, I think why it is important to have somebody who understands payroll, who is detail-oriented, who is getting those alerts and staying on top of it. Again, being in California, we are always, always there seems like there's always updates. There's always changes. And it's not just California anymore. There are many states that I feel like are competing with California now to become even more complex. And so making sure that you have alerts, making sure that you have somebody either inside your business or your payroll partner that really is focused on staying on top of this. I find that when you have people who just like managing HR, they're doing hybrid, meaning that maybe payroll is not their main job. Um, but they're doing something else. It's really hard for them to keep up with all of the changes. And missing some of those changes can be really, really costly if it means wage and hour, the IRS, whatever it is, comes knocking at your door. So I know one of our recommendations is that we do regular payroll audits when we come into a new client. We certainly do a payroll audit and we encourage anybody who is in a small environment to do regular payroll audits. Tell us a few things that you look for when you are managing a payroll audit. One of the things that I look for in the processing a payroll audit or reviewing the payroll processes for a client would be pay time of accruals. Benefit deductions. And all of the new system integrations. So are there retirement plan providers and your HRIS communicating correctly? Okay. So let's wrap with the third component, which is human experience, employee experience. Payroll, while it feels very transactional, there is a huge emotional element to it because we are dealing with people's livelihoods. This is something I say to you and your team all the time. That of all of the things that we do inside this business, payroll is one that we have to really take seriously to get right. We need to get payroll right as often as we possibly can, error-free, really doing our checks and balances and our due diligence because when we make an error, it's not just a mistake. It could be rent. It could be the difference in them paying a bill or not. And so it is such a, there's such a human emotional element that comes along with the very subject of somebody's livelihood and their pay. Um, so what is it that you suggest that people do to to make employees feel comfortable with how payroll is being processed inside their organization? Payroll is a trust transaction, especially in a small business. The employee needs to feel respected in their time and collaboration to the team as well. In that comes with regular pay schedules, with the trust that and the belief that if errors happen and they are going to happen, we're all humans processing payroll. So there is going to be a mistake here and there. But when that error happens, this peep that you do the resolution and the transparency behind the communication to that, it's going to be key to maintaining that level of respect, trust, and trust between the between the employee. And the business as well. Yeah, I love it. I think all of these things are they feel small, they seem small, but they have such a big impact. And so I love that you've laid out some really simple things that listeners, clients can do to kind of button up their payroll practices, make them feel better and they are these small things, but they do have such a big, big impact. All right. So let's talk tools for a minute. The way that we work, we come into client businesses and we work inside of the systems that they already have, which means you and your team are working in many different systems every single day. We get asked a lot if there's one system that can do it all and do it all well. And I already mentioned in a previous episode in that HR tech episode, that there is no perfect HRIS system. And that if you lined 50 HR leaders, 50 payroll leaders up and you said, what do you think about this system? Half of them would love it. Half of them would hate it. You know, there's no there's no consistent response. You're going to get about any system because it really is based on user experience. Having said that, we do work inside of many different platforms and there are ones that we find work better for small businesses. And that what you get for the budget when you're running lean, you have a small budget. What you get out of those systems can really um help and definitely having a good system can make or break your workflow. So give us a few recommendations for tools that we always advise clients or push them towards when they're looking to either set up their payroll for the first time or switch payroll providers. Yeah, so I love this question. Uh, first, for small businesses or small teams, uh, from the get-go, we'll recommend something like Gusto, ADP Run, Paychex Flex, where you only need payroll and time cards, but the system can do tax filings for you: basic reporting for you, and it's user-friendly. For a more medium-sized business, and I'm talking about like it can start from 10 to 30 to 50, 100 employees, but that needs more. You need onboarding. You need recruiting. You need learning modules. You need the a more robust system with a very, very wallet-friendly budget-friendly system. Then that would be Pelosity, ADP Workforce Now, and Bamboo. Something that is important to note is that you need the system to grow with you. So the system that you select, it has to serve you short-term and medium-term. We're not talking long-term because you could outgrow it, but you don't want to outgrow your system too fast. If you are a global system, if you have a few global contractors or global employees, then we recommend Replin. If you we also recommend Replin if you want everything in one place. So that means your IT, your HR benefits, payroll, everything that you do, it's going to be under Replin. So that's like a bigger enterprise system. And they also have the ability to process global payroll. If you only have some or a few global contractors, you could look at options like Deal, for example. Yeah. We definitely have lots of options. And one of the things that we always try to do while we certainly have our favorites, and because we work inside of systems, we have relationships with many of these providers that allow us this direct line to those providers to be able to get quotes. We're sometimes able to get lower quotes just because of those relationships. But also if something is going wrong in implementation or after the fact, we kind of have that relationship to give those direct lines. To get that direct access to them. Even though we have those relationships, we still really try to give all clients the options of multiple systems. So when clients come to us and say, I'm looking for a new HRIS system or I'm looking for a new tool to do X, Y, and Z, we point them towards our favorites, of course, and we'll demo those, but also we'll demo something else that we feel like fits what they're looking for. There is so much HR tech available and you know we have our favorites because one, we get to become experts in working in them um but there is so much available that we think it's really important to look at your options, look at a few different options when you are going into any kind of implementation. But definitely the ones that I think you mentioned today are the ones that we see perform the most consistently at the sizes that you mentioned. I think size matters here. um And you know, you you can outgrow systems and some of the systems are best for payroll only, some of them are best if you want all the bells and whistles. And so I think that for anybody listening, it's really important to think about the size of your organization. Also go back and check out that that previous episode where we talked all about HR tech and the things you really want to think about when you are looking at an implementation or going into a demo. Yeah. All right, Penelope. So every payroll person, just like every HR person, has a story, a story of when things went completely off the rails, still keeps them up at night, even though it's handled now. um For us, it could be a situation where there were there's an IRS issue or just a massive payroll issue, maybe payroll didn't run at all. I don't know what what the story can be, but we I often joke that clients come to us and they kind of give us this ball, right? This ball, this kind of messy ball, and we have to unravel you know each string to get something that looks very cohesive. um And I know that that has happened with you as you are our onboarding new clients and taking over their payroll process. So what is a story that you have about a messy payroll situation and how we went about fixing it? We have many. So I don't think I can. Just um pinpoint one, but I I do have one in mind right now, actually. And uh for that one is it was this incoming client while we have been working with them on on a project-based uh basis. Uh They unfortunately lost their CFO in a drastic manner. What while the CFO it was somehow expected unfortunately unfortunately the CFO owned all of the processes. Finance, payroll, commissions, with that also he had access, he was the only person that had access to systems. To spreadsheets. He was the main point of contact for retirement plans, benefits, everything. This client comes to us and payroll has to be processed within 48 hours. We have to run against the clock and try to leverage some of those partnerships that we have with the systems. So it could have been ADP or Pelosity and try to get access just so we can run payroll. At this point, we just want to run it. We want to make sure that the employees are getting paid on time. We did it. The employees were completely unaware of all the hassle that we that we did behind closed doors. However, it didn't end there. So we had to do some audits. We realized that a lot of the employees that were terminated from years past, they continued to be active and participants in the 401(k) retirement plan. So you could imagine that this client, they had 20 active employees and they had 200 active participants in their plan. Their monthly bill was ridiculous. And their we also realized that the system was not implemented correctly. The benefit deductions weren't pulling out correctly. And the pay time of accruals were completely off. So it was definitely a massive ball to unravel. But at this point, it's been almost a year from that from then and we have saved them up to $10,000 from switching them to a new system that was going to do marvelous for them. They had onboarding, they had recruiting, they had performance, their paying half of what they were paying ADP Workforce Now. Uh, so it was it was a lot, but but we did it. Yeah, I think that story is such a good lesson in A, have a backup, right? Uh, on our payroll team, there are two of you, but certainly um a backup situation. And we have other members of the team that could step in and run payroll if they had to. But if any of any small business, whoever's running their payroll, they really should have somebody who is the backup because if God forbid something happened to that person, I always say if they won the lottery and decided not to show up the next day, then who's going to pick up payroll? And so that is definitely a process that you can't um if you don't have the the experience, it's hard to wing it. You you were able to come in and figure that out because you have such extensive payroll experience, but having that backup is such a huge need for something like payroll. We see clients all the time that come in. We don't even manage their payroll, but they ask us to learn it just so that if that payroll person wants to go on vacation and not have to run payroll on their vacation, we can handle that for them. So having a backup, I think, is really important. The other thing that that story highlights is um that when if you just set and forget payroll, then you can have uh errors in the way things are processing. You can be paying for things that you don't need to be paying for, which in a small small business, you don't you don't have the space for that. You don't have the leverage to be able to just be throwing money at something that you don't need to. Um, and so it becomes really important to not just set your payroll up and wing it and hope that the system is doing everything right, but to make sure uh that you are continuously looking at what's happening and that it is happening the way that you think it should be. All right, so here's your takeaway. Payroll is not just about cutting checks. It can get really personal if there are issues inside of payroll. It is absolutely a cornerstone of your HR infrastructure. In these podcast episodes, I have talked about strategy, compliance, infrastructure, and managing payroll well and having a really good and consistent payroll process is an absolute cornerstone of a strong HR infrastructure. Get the back of the house in order and then that frees up the time to be able to to work on the things that actually move the business forward. So Penelope, if you had to share with our listeners one thing that they could do today, just one small thing that doesn't take a lot of time, um, that they could do to look at their payroll and ensure that it is on the right track, what would that be? I can definitely think of more than one. So I'll I'll give you three. The number one would be to review your pay time of balances. Always remember that pay time of balances is a liability against your business. You have to pay out those balances. So review it. Make sure that there are occurring correctly. Make sure that, uh, in the worst case scenario, there are occurring less, but also what happens if there are occurring more? You are going to owe that employee more money. Mm-hmm. Number two would be to leverage your your own employees. You don't have to do all the heavy lifting yourself. So before the end of the year, when Q4 starts, ask your employees to review their information. It could be their taxes, their address, their deductions. Make sure that they come to you and they know to reach out if they notice an error. They can flag it for you. And then the number three would be to to audit your invoices and your and your benefit deductions as well. Make sure that if an employee is inactive and an employee is terminated, they're not in your in your benefit invoices because then you could find yourself like this other client that had 200 active employees with only active participants with only 20 active employees. Yeah, it becomes so costly when you're not moving employees off of things that you are paying for. So great advice. I love all three of them. Um, and we have some rapid-fire questions that we didn't get to ask Penelope in this episode, but we are going to put them in the show notes. So if you want a few more tips and tricks from her, check out the show notes. Penelope, thank you so much for being here today. I know you are a busy payroll lady. Um, but I appreciate you coming and sharing all of your best tips and best practices. In the show notes, we are also going to link Penelope's LinkedIn so you can connect with her and if you had payroll questions or just wanted to talk to us about, uh, payroll management, then she would definitely be a great person to reach out to. This is the part, uh, first part of a three-part series that we are doing on the HR Commission podcast where I bring in my business partner, Penelope, who is one of the business partners in the business. Uh, we have two more who are going to be on some secret episodes talking about benefits and then employee relations and small businesses, whether you are not already subscribed to HR Commission. Uh, please do that so you can get notified of those future episodes. Thank you so much for being here.