More than half of workers experienced payroll errors at least one time during their career. Some common errors are underpayment, overpayment, late payments, and non-payments.
These types of errors erode trust between you and your workers. Payroll processing mistakes can increase turnover and cost your business money.
There are other payroll processing mistakes that result in fines and penalties. They cause a lot of stress for a small business owner.
1. Know Payroll Tax Deadlines
One of the most common payroll processing mistakes that small business owners make is that they forget to pay payroll taxes on time.
If your payroll taxes are up to five days late, you’ll pay a penalty of 2% of the taxes due. Between six and 15 days late gives you a 5% penalty.
Forgetting to pay your payroll taxes and remembering 15 days later is costly. You’ll get charged a 10% penalty along with interest charges.
These are penalties assessed by the IRS. There are additional charges if you pay your state payroll taxes late as well.
2. Pay Correct Tax Rates
You always want to withhold and pay the correct tax rates. There are a couple of ways to avoid this mistake. One is to use payroll automation software. You have to make sure that the software suite gets updated to account for any tax changes.
The other way to pay the correct tax rates is to turn to payroll outsourcing. This saves you time from processing payroll and you know that it’s done correctly.
3. Classify Employees and Contractors
Employers are under fire for hiring contractors when they should really hire employees. Contractors are a great way to see if a person is a good fit with your organization and reduce your overhead.
However, misclassifying employees and contractors can get you in serious trouble. Use this guideline from the Department of Labor to make sure you accurately classify employees.
4. Correctly Process Employee Garnishments
There are times when your employees fall on hard times. They might get divorced, run into tax trouble, or have other issues.
They could face wage garnishments, which means that you have to withhold extra cash from their paychecks. You don’t have much standing to ignore or fight the garnishment on your employee’s behalf.
Process these requests correctly because you could be fined if you don’t.
5. Keep Good Records
Good recordkeeping is necessary and should be part of your payroll processing process. It’s your responsibility to produce records if asked.
The Fair Labor and Standards Act says that you need to keep payroll records for three years. The IRS requires business records to be kept for about seven years.
Payroll Processing Mistakes to Avoid
Taxes and payroll processing are complicated. They can cost a lot of money and employee goodwill if you don’t get it right.
The tips in this article showed you the most common payroll processing mistakes and how you can avoid them. The best thing you can do is outsource payroll processing to make your life as a small business owner easier.
For more business and marketing tips, be sure to check out the other articles on the blog today!