Running a business of any size can be stressful. Once you add an employee or ten, you take on an entirely new level of obligation and anxiety. Payroll compliance is often one of the major stressors. However, you can prevent a great deal of trouble by ensuring that you avoid these three common payroll mistakes.
1. Small Business Payroll Mistakes Can Lead To Inaccurate Wage Calculation
Overpaying employees is more common than it should be – and these funds are difficult or even impossible to collect. On the other hand, underpaying them will almost certainly interfere with morale or even lead to legal action. You can streamline wage calculation and avoid payroll mistakes by buying good software and insisting that your employees use it religiously. Be sure to keep different processes for employees and independent contractors if your business uses both of these.
2. Payroll Errors in Withholding
If you think your employees will react poorly to getting stiffed on their paycheck, just wait and see how the IRS handles it. The employer is responsible for calculating and withholding all payroll taxes, including state and federal taxes, and ensuring that these funds make it to the right entities by their due date. It is crucial to withhold the correct amount and send it in on time.
The most common payroll errors are simple arithmetic mistakes and misclassification of employees as independent contractors. Both of these mistakes can lead to high penalties and even criminal charges. Ensure that you understand and are compliant with every letter of the laws.
3. Poor Recordkeeping
As every accountant knows, some clients really struggle to keep the right records and to ensure their accuracy. Inaccurate or nonexistent records can lead to a great deal of mischief with the IRS as well as other regulatory agencies.
Put a system in place to double check all data entered into your system. In addition, you should keep detailed records of all payroll activities for at least three years. For many businesses, a third party cloud provider is the only way to store this immense amount of data. However, you certainly do not want to be caught without it when a subpoena or an audit letter shows up in the mail!
Ultimately, small business payroll requires more skill and knowledge than most business owners are willing to admit. Hiring professionals to handle this aspect of a business allows owners and management to focus on growing their company. Hiring professionals also has the added benefit of security, knowing that you will not be surprised with legal action down the road. Payroll mistakes can have a devastating effect on businesses, so avoid them at all costs and get the help you need.
