Payroll management is a time-intensive process that can stress HR staff and management who are under pressure to meet tight deadlines. Mistakes and oversights can result in late payroll runs that damage a business’ reputation with employees and can expose employers to costly tax liability and penalties.
Here are the 10 biggest payroll mistakes we see employers make. How many of these apply to your business?
Not being proactive about payroll processing.
Payroll is not an afterthought. Businesses should never wait until the last minute to process their payroll. Instead, they must establish a system that allows for enough time to carefully review payroll for mistakes. Businesses who work with a payroll company must send information with enough time for the payroll processor to review and submit before cutoff time.
Scattered time keeping systems, information stored on Excel spreadsheets and file cabinets stuffed with paper forms can lead to reporting mistakes that result in annoyed employees and tax liability. Businesses should consolidate record-keeping into a single system that automatically populates tax documents. Whomever is tasked with maintaining records must pay close attention to details and take the time to double-check all calculations.
Missing deadlines and failing to respond to notices.
State and federal tax authorities are serious about deadlines. There is no room for error. Tax payments and filings must be completed on time. Even forms requesting extensions must be filed correctly and meet certain deadlines. When a company receives a notice from the State Tax Board or IRS, it is vital to take it seriously. Failure to do so will result in penalties and compound interest that will hound the business until resolved.
Incorrect calculation of overtime pay.
Incorrect calculation of overtime pay not only aggravates employees, it can attract the attention of tax authorities. Rules and requirements vary by industry and employment type, so businesses should proceedarefully. We recommend consulting the Department of Labor website to review the Fair Labor Standards Act (FLSA) and clarify details about how overtime pay applies to specific employees.
Misclassification of employees.
Many businesses incorrectly classify common-law employees as independent contractors. This results in incorrect reporting of compensation on W-2s versus 1099 forms and can lead to missed tax payments and withholdings that can create headaches during tax season. Businesses who are unsure of the their contractor vs. employee status can ask the IRS to help make the determination by filing Form SS-8.
Not depositing withheld taxes on time.
Once again, tax deadlines are crucial. Businesses who fail to deposit their taxes when due (usually on a monthly or semi-weekly basis–or sometimes the next business day if certain tax thresholds are reached) are subject to harsh penalties that begin accruing interest immediately.
Trying to handle everything in-house.
Employers must recognize when their business has outgrown their ability to handle payroll in-house. Even for businesses with a dedicated HR staff, managing payroll minutiae and constant deadlines might not be the most efficient use of their time. At that point it is best to start researching reputable payroll processing companies and outsource payroll services.
Relying entirely on a DIY software solution.
Payroll software has enabled businesses to oversee many aspects of their own payroll. This is especially helpful for small businesses who do not have the resources to employ a full-time HR staff employee. However, when complications arise, software provides little support and virtually no guidance. Partnering with a professional payroll company that uses automated systems for recordkeeping and payroll approval, but who also offer personalized expertise, can guide you through the nuances of payroll and ensure correct forms submission and tax compliance.
Getting locked into a contract with a payroll provider.
Businesses using a payroll provider can get enmeshed in long contracts and become subject to termination fees, even if their provider is not best suited for their needs. We recommend working with payroll providers who exhibit enough confidence in their services to allow their clients to change payroll services at any time.
Making mistakes on payroll forms.
Sloppy calculation or rushing through payroll form completion can lead to under- or overpaying payroll taxes. These costly errors can be avoided. Businesses should take the time to closely review calculations and make sure that line items match up on payroll reports and financial statements.
Accurate, timely management of payroll keeps businesses running smoothly. Employers who do not take these responsibilities seriously are simply setting themselves up for complications further down the line and can create a devastating impact on their business.
If you have any questions about your company’s payroll process and would like to discuss ways to streamline your system and protect your company from liability, contact us at (480) 558-4336 and we will review your current process and help you discover greater efficiencies.