Whether you have one employee or 100, you need a strong payroll management system in place. With all the activities associated with payroll, from paycheck processing to filing and paying taxes, the risk of making costly mistakes is always there. The good news is that you can easily avoid many errors if you know what to expect and rely on the right service. Breakthrough Bookkeeping shares top five payroll mistakes to be aware of.
1. Failing To Keep Complete and Accurate Pay Records
Not all states require you to keep pay stubs, which detail things such as the employee’s information, your business information, the number of hours the employee worked, and the employee’s pay rate and gross earnings. However, even if your state’s laws do not require you to provide pay stubs to workers, the Fair Labor Standards Act requires that you maintain complete and accurate pay records for all nonexempt employees. Among those records are how you pay an employee, the employee’s regular hourly pay rate, the times and days of the week the employee’s workweek begins and ends, the total wages paid in a period, and the pay period.
Failure to maintain accurate pay records could subject you to penalties and fines from the IRS. Moreover, if you cannot provide a current or past worker’s W-4 or I-9, you may face criminal charges.
2. Missing Tax Filing Deadlines
The tax filing deadlines for small businesses and corporations are different than those that apply to individuals, freelancers, and contractors. There are also various deadlines for the types of taxes you must file, such as payroll taxes, federal unemployment taxes, and FICA taxes. If you want to avoid costly late fees, interest charges and penalties, it is imperative that you mark your calendars, run your reports, and make deposits in a timely manner.
3. Misclassifying Workers
Research shows that as many as 10% to 30% of U.S. employers misclassify workers as independent contractors. Some do so on purpose trying to save money on payroll, overhead, and other expenses, while others commit the error because they’re misinformed. Regardless, misclassifying workers is a huge no-no and can result in legal violations, tax consequences, lawsuits, and fines. It is important, from a legal standpoint and for your bottom line, that you properly classify workers so you can input the correct payroll information for filing purposes.
4. Not Using Online Payroll Services
Making people do extra work takes up their time and increases the chances for human error. A helpful and affordable payroll app can take many of the headaches out of payroll management. Find an app that can save you time by offering advanced features such as automated payroll, reminders, and reporting. Automating most of the payroll process can complement your existing accounting team, giving them more chances to catch and correct mistakes and deal with more complex matters such as levies, wage garnishments, and support orders. Some payroll services even allow you to easily pay your employees from your smartphone. You’ll also have the option to set reminders for taxes and review employees’ pay stubs whenever you need to.
5. Miscalculating Overtime Pay
Overtime pay lawsuits are on the rise, costing U.S. businesses millions of dollars each year. State and federal laws have strict guidelines that businesses must follow when it comes to overtime pay. If you fail to adhere to those guidelines, it could cost you money and your reputation.
Payroll mistakes cost U.S. businesses billions of dollars each year. Know what to look out for, and count on a reliable payroll service to handle these issues so you can pay your employees without putting your business at risk.
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