Payroll Stats for Small Businesses

According to a number of studies and payroll states, every year the IRS penalizes small businesses billions of dollars for payroll errors– a burden that’s time-consuming, costly, and potentially hurtful in terms of attrition. But, who can blame the small business? US tax codes and the nuanced detail of payroll compliance are overwhelming at a minimum.

For starters, depending on which tabloid-like web search result you look at, there are between 2,000 pages and 70,000 pages of tax codes in the United States. That’s a 68,000-page discrepancy. So, where to begin and who to trust?

On top of that, there are regional regulations for things like overtime, bonuses, and minimum wage, which small business owners are supposed to somehow keep up with.

For example, the meaning of “overtime” varies depending on your location and will be different for businesses in Los Angeles and Palm Springs, Florida. In California, if an employee works 9 hours in one day not a minute for the rest of the week, the business must pay the employee overtime for that extra hour worked (the 9th hour). This is not the case in any other state.

It’s no wonder 40% of small business owners say bookkeeping and taxes are the worst part of owning a business (and the most time-consuming). In fact, payroll stats say that companies that outsource payroll save 18% over businesses that tackle it themselves. 

This stuff is hard.

82 million U.S. employees — or 54% of the American workforce — are affected by payroll problems.

To help make sense of the information, we’ve compiled some of the more interesting statistics regarding small business payroll, broken down into four categories. We encourage you to skim the stats, and take what you need in hopes that this clarifies the complexities of payroll.

1. The Effect of Your Paycheck on Your Employee: More Than Just Cash Money — Stats to help you understand how important reliable payment is to your employees.
2. Issues Stemming from Payroll: Penalties & Impacts of Mistakes — Stats that help you understand the consequences and magnitude of inaccurate pay and payroll reporting
3. Whoa, Really?: The Time and Cost of Doing Payroll — Stats that help business owners gain some perspective about how much time and money payroll really takes
4. Leaders and Learnings: Aspirational Stats from Smart Companies — Stats from leaders in the industry who are doing payroll well, and to whom we all aspire to be.

The Effect of Your Paycheck on Your Employee: More Than Just Cash Money

82 million U.S. employees — or 54% of the American workforce — are affected by payroll problems.

49% of workers would begin a new job search after only two issues with their paycheck.

66% of Americans would experience financial difficulty if their paychecks were delayed by one week. (Source: National Payroll Week)

Payroll mistakes occur twice as often in homegrown payroll solutions as compared to third-party solutions, 11.4% vs 6.1% respectively.

30% of organizations surveyed said they would strongly consider switching to a new provider for a better user experience

Issues Stemming from Payroll: Penalties & Impacts of Mistakes

54% of employers state there is room for improvement in their current payroll policies and practices.
40% of small to mid-sized businesses incur IRS penalties related to incorrect payroll filings? The average penalty is $845.

Integration of automated timekeeping payroll reduces the error rate by nearly 2/3 over those organization simply automating.

Research has shown that 78% of full-time workers live paycheck to paycheck, including 1 in 10 people making $100,000 or more.

Integration of automated timekeeping payroll reduces the error rate by nearly 2/3 over those organization simply automating.

Across the US, over 5 million employers were assessed over $7 billion in civil penalties in 2017.

Whoa, Really?: The Time and Cost of Doing Payroll

40% of small business owners say bookkeeping and taxes are the worst part of owning a business.

The average payroll clerk spends 7 minutes per time card each pay period:

• Preparing and handling time cards
• Computing time card totals
• Verifying time card totals
• Computing shift and department totals
• Recreating lost or damaged time cards

The Cost: Manually preparing 100 time cards will take an estimated 11.67 hours to complete. Therefore, at an average clerical wage of $15 per hour, time card preparation would cost $175.05 per pay period.

A majority of small businesses spend $1,000 or more on annual costs on the administration of taxes, internal costs, legal fees, etc, with specific breakdowns looking like this:

• 23% spend $1,000 or less
• 31% spend $1,000 to $5,000
• 18% spend $5,000 to $10,000
• 12% spend $10,000 to $20,000
• 16% spend $20,000 or more

Leaders and Learnings: Aspirational Stats from Smart Companies

Organizations with integrated Payroll and HCM are 44% more likely to utilize business intelligence or data query tools to mine their payroll data.

Organizations with integrated Payroll and HCM are 38% more likely to use dashboards and reporting tools to combine workforce and business data.

Organizations with integrated Payroll and HCM are turning data into insight, and are 37% more likely to use predictive analytics solutions to help with forecasting workforce planning.

Organizations that automate and integrate payroll, benefits administration, absence and leave, and compliance reporting 7% less likely to have payroll errors; and 36% more likely to report improved employee productivity.