5 Payroll Mistakes That Might be Hurting your Business

One of the most critical functions for growing your business is managing payroll. However, this isn’t a piece of cake and is surprisingly complex as managers tend to make mistakes, which may have costly and painful repercussions.

Your business’s payroll manager may make mistakes with classifying your workers, incorrectly calculating wages, deductions, and taxes, and mishandling compensation for work-related injuries or training.

All these mistakes may seem minor at the moment. Still, they may have a long-lasting impact, which may even ruin your business reputation and deteriorate the health of your business.

What are the Outcomes of Making Payroll Mistakes?

Payroll mistakes may lead to financial penalties, company audits, or lawsuits. The owners may face investigations by the United States Department of Labor or the IRS, in addition to lawsuits from the state and some local agencies.

In the worst case scenario, the mistakes involving incorrect wage calculation of employees may negatively impact employees, tarnishing workforce morale and leading to problems such as lower productivity.

While these may seem innocent oversights, they may lead to big-time troubles. Small businesses may face several payroll-related challenges. However, this may remain the same fact that these payroll errors disrupt the business’s health and cause long-lasting harm. Thus, organizations must take every possible step to avoid these costly mistakes.

Since prevention is better than cure, businesses must be aware of the most common mistakes they’re most likely to make, some of which may be:

• Improperly Classifying Workers:

Business managers must classify their workers based on two main classifications. They may segregate workers based on whether they are independent employees or contractors or are exempt or non-exempt under the law.

It is obviously difficult to classify a worker as a contractor or an employee sometimes. However, some resources on the internet may help you determine the correct designation. Nevertheless, some deciding factors include the length of time a particular worker works for the company, whether they use their equipment, and who determines their schedule. Or, they may even fill the Form SS-8 to ask the IRS to determine the worker type for their business.

It is crucial to get the classification right as the employees are entitled to overtime pay or minimum wage, and contractors, on the other hand, aren’t. If you hire an employee, you, as a company owner, must pay the employer’s share of the payroll taxes and have the right to withhold the income tax off their paychecks.

It is worth noting that the workers exempt from the law aren’t entitled to the Act’s protections. For instance, they aren’t legally required to receive overtime pay. The exempt employees include executives and some other salaried employees. Reviewing the DOLs guidelines closely is vital before making a proper determination.

• Misclassifying Employees:

A crucial part of your roles and responsibilities as an employer is determining if your workers are employees or contractors. Remember that misclassifying employees could lead to several issues, including unpaid taxes, penalties, etc.

To ensure you’re classifying employees most aptly, avoid mixing the two and learn the striking differences between contractor and employee. To determine the best designation for your worker, consider asking some questions, which may be:

1. Do I have a right to control the worker’s actions and how the worker does a particular job?
2. Can I prepare any written contracts?
3. Can I control the business aspects of a specific worker’s job? These include things like how a worker is paid.

Still trying to figure out how to classify a worker. Business giants understand how difficult it can be, especially when there are a gazillion things on your table. Taking assistance from experts like Voyager Partners should be your next step, as they can help you navigate the forward steps.

• Employing Incorrect Tax Rates:

While many people are unaware, some tax rates differ from one year to the other. And, if they do change and you need to realize how, it is where the chances of a payroll blunder are great.

When you calculate and incur the incorrect tax rate, you may make up the difference. And, if guessed correctly, you may have to pay some late fees, interest on taxes, and even penalties.

Thus, you must have proper knowledge of the current and upgraded tax rates to avoid such massive losses and making a big blunder of shelling that extra cash out of your pocket.

Keep a keen eye on the mailbox or your inbox to get all the necessary notifications about the changes. To dwell in tranquility, contact all the state and local governments to check up on the rate shift. Even a quick Google search will do your bit.

After all, it’s better to be safe than sorry. And, for complete relief, you can go ahead with a cloud payroll, which automatically updates all the tax changes.

• Missing Upon the Payroll Deadlines:

When running payroll, you are a deadline tracker. Need to track due dates for paying employment taxes and running a payroll. The chances are excellent for you to take a plunge in deep water with the government in charge and employees. And nobody wants that.

For ensuring paying your employees well on time and remit taxes by due dates, you can take the following steps:

1. Ensure that you’re organized.
2. Put reminders for running payroll or remitting taxes.
3. Establish a routine, like running a payroll at 10 in the morning every Monday. Make sure to take advantage of it.
4. Employ full-service payroll software.

The more you prevent missing deadlines, the better your position will be. Forgetting to run payroll well on time, ensure owning up to your mistakes, paying your workers, and taking all the necessary steps to avoid those shortly.

If paying and filing your employment taxes skips your mind, never panic. Instead, reach out to your tax agency to find all that’s required and get all the ducks in one row.

• Not Keeping the Payroll Records:

Your role as an employer is to keep all the records of important documents. And, yes, this includes all your payroll records. However, failing to keep in-depth payroll records may be a mistake some business owners make worldwide.

Not keeping adequate records may bite you right in the butt and may come at tax time or even during an audit. Businesses must ensure maintaining records, including payroll taxes, hours worked, gross wages, and pay rate details.

Some other mistakes companies tend to make have a poor payroll process, forgetting to send out the tax forms, improperly calculating the employee’s pay, and not knowing the difference between exempt and non-exempt employees.

The Conclusion

To simplify your payroll processes, avoid all the above mistakes and consider your options. To help with the calculations, it is wise to keep updated with the ever-changing laws & rates. You may also use payroll software or outsource your payroll to specialists like Voyager Partners to handle everything.

Make sure to have a solid plan of action to have your business payroll up and running.