Congratulations, you’ve just started a new business of your very own! You’ve taken a big leap in the business world, and you’ve got a long, hopefully exciting, hopefully profitable, journey ahead of you. If things have gone well, you’re not taking this journey alone, and you’ve got a staff of loyal employees behind you, ready to pursue your collective goals. But one of their goals is dependent on you: making a good income. As an employer, providing fair compensation for your staff’s hard work is one of your biggest responsibilities, which means you should make sure you have a budget for it. 

What Goes in a Payroll Budget

When budgeting for your staff’s compensation, you should include any and all expenses directly related to your employees. These expenses include not only wages but also employer taxes, insurance premiums, commissions, company contributions to retirement funds, bonuses, tips, and paid leave. Not all businesses provide all these different benefits and forms of compensation, but if yours does, it needs to be in the budget. 


How to Create a Payroll Budget 

To create your budget, there are four primary steps to take. First, identify all your employees. This includes full-time employees, part-timers, temporary staff, and hourly temporary staff. Next, list all your employees’ employment types, tax withholdings, and benefit elections. Employment types are divided by the type of tax form a given employee receives, either a W-2 or 1099.  


The next step is to map the costs for each employee. Make sure to confirm all the data for each one since inaccurate bookkeeping can lead to a tax audit or other penalties. Finally, once you’ve verified all the information in your budget, compare it against your total expected monthly revenue. 

The Right Budget Size

Accounting experts generally agree that small businesses should budget 20% to 30% of their gross revenue for payroll. However, there are exceptions. Some service industries have reduced expenses due to requiring little to no materials to operate beyond some basics, like office supplies and gas money for commuting. This allows these businesses to invest more of their revenue back into their employees, sometimes up to 50% of their gross revenue.  


You should also keep in mind that as your business grows, your expenses may change. You may have more employees or require more travel to meet with clients and business partners. You may have to add additional locations, which could mean more location upkeep expenses, more property taxes, or more lease or rent expenses. Making sure your total budget is balanced will require you to juggle these various expenses and keep accurate records of all of them, which can be a lot to handle.  

Keeping the Books Balanced

Not every business owner is an expert accountant, and unless you’re running a financial service, you shouldn’t be expected to know everything about payroll budgeting. But it’s an important part of any business, so if you don’t already know how to create a budget, there are several ways to handle it. You can learn how to do it yourself, but that will require training. You’ll also be personally responsible for the record-keeping on top of all the other duties you have as a business owner. You can also hire an in-house accountant, but for a small business, that can be a considerable expense. If you want a solution that’s both cost-effective and lets you and your staff focus on your customers/clients, your best solution may be to contract a payroll service provider.  


A payroll service provider is a third-party company that manages your business’s payroll and distributes compensation to your employees. A quality payroll service will provide you with regular reports, ensure you’re in compliance with all applicable laws and regulations, keep accurate payroll records, and assist with tax filing. A good payroll service won’t make decisions on your budget without your approval and will stay in communication with your business to make sure you’re informed and satisfied with how your money is being managed.  

Create Your Payroll Budget With Payroll Vault

We are a boutique-style payroll and outsourcing service provider, offering customized payroll services and human resources solutions for small businesses like yours. Our accounting experts help business owners like you with planning your payroll. We offer customized reporting, reliable and easy communication with our accounting team, tax filing, a comprehensive menu of business administration services, and a variety of HR services, such as background checks, labor law posters, and more. To find out more about how Payroll Vault can help your business, visit Payroll Vault, or stop by your nearest Payroll Vault location for a consultation!