While mistakes will occur from time to time, one area where it should be minimized most is payroll. Small businesses especially are susceptible to errors since they lack the personnel and resources of their larger counterparts, making it challenging for them to keep up with constantly changing regulations. The worst thing about these errors is that even if they are not intentional, if not quickly resolved they can land you in hot water with the Internal Revenue Service. Below are three common payroll errors to watch for this year.
Missing Your Payroll Deadline
This mistake will quickly erode the goodwill you have with employees, and may also put you in violation of state compliance laws. To avoid it you should establish a schedule for payment that is acceptable to your employees and maintain it at all times. Most payroll schedules in the U.S. involve paying employees every two weeks. While such a schedule may seem simple to follow, the one thing that trips up many employers are bank holidays.
For instance, if employees are normally paid on Fridays, and a bank holiday falls on the same day, your employees will need to be paid on Thursday, otherwise they must go the entire weekend without pay, which will be quite aggravating. Employers that work with payroll providers should find out their policies regarding late payments.
Not Paying Your Taxes Correctly
Tax laws are complex and in a constant state of flux, so making a mistake is easy. An employer that screws up their taxes will have to make up for it, which usually involves the payment of interest and fines. To prevent this, always remain abreast of the local, state and federal taxes that your business is expected to pay. Rates will usually change at the start of a new year, and while some states require business owners to pay income taxes, others do not. You also have to factor in things such as taxes for unemployment insurance, Medicare tax, and taxes for Social Security. If the process is too time consuming or overwhelming, advanced payroll software solutions have been introduced which largely automate the process.
Some employers may think that it isn’t a major issue if an exempt employee is identified as being non-exempt, but in actuality it is important to tax agencies. An exempt employee is one that does not have eligibility for overtime, while nonexempt employees do have eligibility. If you get the two confused, the employees may actually miss out on wages they’re owed.
This is why when reviewing W2 forms employers must exercise care, and the best solution is to maintain awareness of the different classifications for each employee, to ensure they are paid correctly while you avoid fines. While W2 employees have a salary and obligations which are set, 1099s are designed for contractors who have a specific length of time they will work under you. Payroll is one of the most critical aspects of running a business, so getting it right is absolutely essential.