Payroll is one of the most important necessities for a business. Payroll mistakes can happen to any size business, large or small, but the consequences can be costly.
If you’re in charge of making sure employees get paid, it’s important you’re aware of these common payroll mistakes and how you can avoid them.
Top Payroll Mistakes You Should Consider
Choosing the Wrong Payroll Schedule
How often do you pay your employees? You may not have thought about the kind of impact this could have on your business.
There are several pay period options you can offer to your employees, however most state laws require a minimum pay period, meaning you can’t pay less often than whatever pay schedule you’re on, but you are able to pay more often.
There are advantages in some payroll schedules vs. others and depending on what you choose, it could mean less complication for your business.
A bi-weekly pay period offers convenience to both the business and employees. Employees know when they’re getting paid and can expect the steadiness of their paycheck. A bi-weekly pay schedule also allows for the company to be more compliant with state compensation regulations.
However, a bi-weekly pay schedule means less consistency for the overall budget. Some pay periods fall on a weekend, or longer months may have an additional pay period.
A semi-monthly pay period is also an option. This is more appealing to your accountant than to employees. Most employees prefer to be paid more often, and there’s only two extra paychecks in a bi-weekly pay period, the semi-monthly runs a little smoother from the business side of things.
Benefits usually run on a monthly basis and if your employees have voluntary deductions, this makes payroll deductions very easy. Accountants usually run monthly reports and semi-monthly pay periods usually have the last pay period at the end of the month which is to coincide with the accountant’s reporting.
These are all things to consider when setting up payroll.
Having Inaccurate Employee Data
It’s important that all employee information is accurate, or this can leave ripple effects in payroll errors. Mistakes can include incorrect tax numbers, social security numbers, addresses, and even the spelling of the employee’s name.
If this information is entered incorrectly it could affect deductions, unemployment, and direct deposit for employees.
Misclassification Of Employees
Misclassifying employees can lead to serious issues with the government. Employees vs. contractors are very different, especially when it comes to taxes and benefits. If an employee is classified as a contractor instead of an employer, you can be fined and held responsible for numerous penalties.
Make sure you are properly classifying your employees so there aren’t any surprises come tax time.
With all the talk regarding the new overtime laws, it’s important you know which employees are exempt or non-exempt.
The exempt/non-exempt classification is based on whether or not the employee qualifies for overtime pay. The new rule raises the salary threshold in which employees must receive additional pay for time worked over 40 hours to $47,476 a year from $23,660 a year—the cutoff established in 2004.
Poor Record Keeping
Keeping track of all business and employee records is important. However, when you’re dealing with payroll, it’s important you follow procedure and state protocol.
If you offer both options of direct deposit or a printed check, it’s important to create a process and recording system so nothing slips through the cracks.
If manual checks aren’t accounted for properly your accounts will become unbalanced, your tax deposits will be inaccurate, and your company could be at risk for penalties from the IRS.
Some companies are responsible for automatic court-ordered payments, such as child support. It’s very important that this type of information is entered immediately into your payroll system with the accurate dates and employee information. If these actions aren’t taken, you may be liable for additional penalties.
Late In Filing Taxes
A business is required to file taxes on a monthly or semi weekly basis. Businesses must deposit the taxes on time when they reach a certain amount. Failure to do this means the company will face late deposit fees.
How To Avoid Payroll Mistakes
Payroll mistakes can happen to anyone, but it’s important to have as many processes in place as possible to eliminate as many errors as possible. Setting up these aspects of your business in the beginning stages is important, but if you’re having trouble with some of the issues mentioned, it’s never too late to make a change.
If you have questions regarding payroll for your business, you should contact a payroll professional to discuss your options.