5 Common Payroll Mistakes - And How to Avoid Them
Paying your employees may seem like a fairly straightforward task, but there are many common payroll mistakes that you could be making. Staff turnover, not keeping up with local, state, and federal payroll and tax laws, and the sheer busyness of running a business can all lead to critical errors.
These mistakes can cost a business money and be detrimental to its reputation. The IRS penalties for non-compliance with tax laws may be steep and administrative staff may spend a lot of time trying to fix mistakes. Companies also want to avoid being known as an employer that doesn't pay its employees on time or correctly.
Take a look at these five common payroll mistakes, and tips for how to avoid them.
Paying the wrong amount. This could happen for several reasons. Perhaps the payment amount was originally entered into the payroll system incorrectly or the employee over- or under-reported hours worked. It's important to carefully set up your payroll system and double-check all employee information, tax withholding amounts, and payment information. If the initial data is entered incorrectly, you're bound to have payroll problems and errors later on.
Processing payroll late … or not at all. Business owners may get so consumed by day-to-day operations that they forget to process payroll altogether. Reduce this risk by considering the use of a payroll processing service that can help you stay on schedule.
Overlooking bank holidays. Bank holidays aren't counted as "business days" for payroll processing. It's important to know which holidays your bank closes on and adjust your payroll-processing timelines accordingly.
Depositing and reporting employment taxes incorrectly. After you've collected payroll taxes from your employees and contributed your share, you need to submit those taxes to the federal, state, and local tax authorities. You can opt to file those taxes on one of two different schedules, but failing to file them on time could result in a 15 percent failure-to-deposit penalty, according to the IRS.
Misclassifying employees as independent contractors. The federal government has been cracking down on companies that classify a worker as an independent contractor when they should technically be an employee. The effect on payroll is that when a business misclassifies employees as independent contractors, they will need to pay retroactive payroll taxes. Companies need to understand the rules for how to properly classify their workforce to avoid trouble with the IRS.
These common mistakes are just the tip of the iceberg. There are many federal and state laws and regulations regarding payroll that your company needs to be prepared for as well. That’s why you can see that managing payroll is often more complex than many business owners realize until they try doing it on their own. You can avoid these mistakes at your company by working with a payroll provider that can help you navigate the constantly changing laws, and help you keep your payment processing on track.