Top 7 Payroll Mistakes to Avoid
Most small business owners can agree that having quality staff is one of their most important assets. It’s crucial to establish a small business payroll procedure that pays your employees consistently and accurately, regardless of how many you have on staff (2 or 20). Payroll errors can result in disgruntled workers as well as major headaches during tax season. Explore our post to learn the top 7 payroll mistakes that business owners make most frequently, along with solutions to avoid them. Don’t pass up these insightful tips!
Top 7 Payroll Mistakes to Prevent
For every small business owner, employee compensation may be a challenge. When you already have a long to-do list, finding a payroll discrepancy can be very upsetting. You can have concerns like: How can I fix a payroll discrepancy? Depending on the kind and extent of your payroll errors.
- How long does it take for an employer to correct a payroll mistake?
- What effects do payroll mistakes have?
Here are some typical payroll errors that anyone may make and some advice on how to keep your company from doing them.
1. An Incorrect Classification of Employees
Understanding whether to use the term “employee” or “independent contractor” when recruiting someone for your company is crucial. The kind of tax form that will be used to report the wages you pay is one of the key distinctions between these categories. While an employee will receive a W-2 tax form, an independent contractor should receive a 1099 tax form.
If an employee is mistakenly designated as a contractor, the employer may be liable for taxes, according to the IRS. If you need assistance classifying a worker, the IRS walks you through common law requirements. These regulations take into account the conduct, resources, and kind of connection between the employee and the employer. Understanding these regulations is the first step in preventing payroll mistakes.
2. Ignoring Exempt and Non-exempt Situations
You must verify whether an employee is exempt or not in addition to classifying them properly. The Fair Labor Standards Act (FLSA), which establishes rules for minimum wages and overtime, is referred to by this exemption status. This means that as a small business owner, you must pay non-exempt workers overtime and the minimum wage.
Knowing the distinction between these two types of employees is crucial since breaking the FLSA can result in costly fines, legal action, and even employee lawsuits.
3. Records in Disarray
It’s crucial to keep business records structured if you want to make sure you can quickly locate documents when you need them. Using inconsistent file names and saving your documents in several locations can only lead to irritation and wasted effort. This is especially true for documents related to payrolls, such as tax forms and paystubs.
If you don’t maintain organized documents, you’ll have a lot more work and worry if the Department of Labor audits or looks into your business. You don’t want to admit to losing certain documents when regulators ask for them. Making sure your organizational approach is effective is a straightforward way to prevent making this error. Maintaining a well-organized database of personnel records can help you avoid payroll problems and keep things operating smoothly in your company.
4. Ignoring the Needs of Remote Workers
Forgetting that some employees may be located in a different state is another common payroll error. Over the past few years, there has been a significant increase in the number of remote employees, which has presented new issues for remote payroll and taxes. For instance, you need to make sure your company is incorporated in the state where your remote employee works.
The repercussions of making this kind of payroll blunder will probably rely on local rules and regulations. By getting the necessary tax papers with the addresses of your remote workers, you may always know where they are located at work. It’s advisable to consult a specialist who can advise on the next stages if your remote workers are traveling and working in many states. This may necessitate even more incorporations.
5. Payroll Mistake
Even though some payroll errors might not always be obvious right away, an employee will almost certainly call out a mistaken paycheck. A paycheck comprises a lot of information, including pay rate, hours worked, sick leave, etc., all of which are subject to frequent change. Making it possible for the total to vary from pay period to pay period.
Even while an error on a single paycheck might not have disastrous consequences, accuracy should nonetheless constantly be sought after. One of the finest methods for improving payroll efficiency and lowering the chance of mistakes is to hire a payroll specialist to handle the work.
6. Variable Pay Periods
Depending on where your business is located, pay dates will vary. But it’s a good idea to set a regular payday so your staff will know what to anticipate. Although the precise payday need not always occur on the same day, most business owners choose weekly or biweekly pay periods. For instance, you may need to adapt by a day or two because certain paydays will unavoidably fall on weekends or holidays.
Randomly processing payroll throughout the month will result in messy records and disgruntled workers. You might also have to abide by particular laws. It’s best practice to establish a regular payment schedule and to let your staff know about it.
7. Doing It Without Direct Deposit
For a variety of reasons, some workers and small-business owners might still prefer paper checks. Although direct deposit is a more practical and safe method of paying employees, the choice is ultimately up to the employee. Although direct deposit cannot be required by employers, it is still the preferred method when it is an option.
Payroll inconsistencies can result from not using direct deposit, particularly if the check is handwritten. Any manual task carries the possibility of human error. Hence automation is recommended to assure consistency.
How to Prevent Payroll Errors
Small business owners have a lot of responsibilities, so it makes sense for them to outsource some of those activities to reduce their workload. Payroll is an area where errors can be expensive, so take into account the advantages of utilizing help from Your Part Time Accountant. When you work with our group, you’ll get the assistance and knowledge you need to ensure that your employees get paid on time.