Paying employees is kind of a big deal when you own a small business. I didn’t grow up in a family business, so nobody handed me a playbook. I had to figure out payroll the hard way.
My property management company has close to 40 team members today, and I’m sure I’ve employed more than 200 people by now. These are the payroll practices, tips, and tricks that have held up for me over the years. They’re in no particular order, except for the first one.
Rule #1: Don’t miss payroll, ever
Rule #2: See rule #1.
Every other tip in this post has some wiggle room. This one doesn’t.
Pick a payroll schedule and stick with it
There’s no perfect pay schedule. I’ve run more than one, and each has a catch.
Weekly. Blue-collar folks prefer it. But it puts an insane level of stress on the organization to keep up, and it can get expensive.
Twice-monthly (what we used to do). It can take ages for a new hire to get their first paycheck, and a lot of employees hate this schedule because it feels too infrequent.
Bi-weekly (what we do now). You end up with 2 months a year that have 3 pay periods instead of 2. That really sucks.
My advice: pick one and stick with it.
Payroll taxes and W-2 rules: don’t get creative
If you mess up payroll taxes or withholding, the feds can hold you PERSONALLY liable. You do NOT want to mess around with this or try to calculate the numbers yourself.
Use a payroll platform to keep yourself out of trouble. We use Gusto for everything, including benefits, PTO, and paying our international team members. (That’s an affiliate link; my financial interest disclosure has the details.)
The other trap: I see a lot of property managers flirting with the contractor vs. W-2 rules. Risky business. If someone works only for you, chances are they should be W-2, unless they’re a real estate agent or an international team member. Proceed with caution.
Reimbursing mileage and cell phones
When team members drive their personal vehicles for work, use the IRS standard mileage rate and stop there. It covers everything: fuel, insurance, depreciation, etc.
Some team members will try to convince you they need a fuel allowance on top of that. They don’t!
Two details trip people up:
- Reimburse mileage for W-2 team members only, not contractors.
- Subtract the commute. Have each person subtract the round-trip mileage between their home and your office from each day’s miles, even on days they never came into the office. You’re not reimbursing them for their commute (that’s not allowed).
I also recommend reimbursing team members for business use of their personal cell phone (data, texting, and voice) if they don’t have a company phone or VOIP line and they’re making calls for you. That goes double for anyone who’s out of the office a lot.
HR help, holiday bonuses, and PTO
Fractional HR is a thing, and it starts to make sense once you’re past 15-20 team members or so. I’ve found it very helpful. Our HR partner has run our payroll and managed our benefits for many years now, among many other things.
Bonus checks are more fun on paper. We do annual bonuses around the holidays, and I love handing out physical checks for them (we put them in stockings that hang in our office). There’s something fun about getting a physical check for your bonus.
If you do this, write the checks for the net amount and include a printout with the gross amount highlighted, so team members know how much the bonus was. And no, bonuses aren’t taxed at a higher rate than regular wages (withholding might be different, though).
PTO tracking is a real pain. Be careful about how you let it accrue and whether you let team members go into the negative. You can set this up several ways, so put a written policy in place and talk with an HR pro about the tradeoffs. Your choices decide how much $$ you pay out to a departing employee for unused PTO.
In-house maintenance: tie technician pay to billed hours
This one is only for companies running in-house maintenance.
Don’t let technicians submit their hours separately from the software you use to track work orders. Grab the data from there directly. If they need somewhere to put non-billable time, add a “dummy” property as overhead.
Their paid hours need to tie directly to the hours you bill property owners. Any gap comes out of your pocket. I broke down the formula I use to check whether our maintenance department makes money, and utilization rate (hours billed divided by hours paid) sits right in the middle of it. Timesheet hours that don’t tie back to anything in your system drag that number down.
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Adapted from Issue #217 of my newsletter. I write it twice a week for property managers, no fluff. Subscribe here.