Some Common Payroll Mistakes to Try to Avoid
The experts at Utah-based VertiSource HR tell us that payroll errors are something business owners should try to avoid at all costs as they can lead to financial loss, unhappy employees, and potential legal trouble. The following then are some of the common payroll mistakes to avoid and how benefits administration plays a crucial role in keeping a business running smoothly.
Misclassifying Employees
One common mistake is misclassifying employees as independent contractors. This can result in costly tax penalties and fines if the IRS determines you should have been withholding taxes and providing benefits to these workers. To avoid this, ensure you understand the differences between employees and contractors and classify them correctly from the very start.
Inaccurate Timekeeping
Keeping accurate records of employee work hours is essential for payroll. Inaccurate timekeeping can lead to over- or underpayment of wages, which can result in disgruntled employees or even legal issues. Make sure your employees understand the importance of accurate timekeeping, and have a system in place to track hours worked.
Not Staying Up to Date on Tax Laws
Tax laws change all the time. It’s your responsibility then as a business owner to stay informed. If you’re not aware of the latest changes you could end up making mistakes with taxes, with subsequent penalties and interest. Consider working with a payroll service or accountant to ensure you stay compliant with current tax laws.
Forgetting About Overtime Pay
Failure to pay employees for overtime could mean serious legal trouble. Make sure you’re familiar with federal and state laws governing overtime pay and keep accurate records of hours worked. If you’re unsure whether an employee is eligible for overtime pay, consult with a labor law expert or HR professional.
Neglecting Benefits Administration
Benefits administration is a key component of payroll management. If you don’t correctly manage employee benefits like health insurance, retirement plans, and paid time off, you could face financial and legal consequences.
Poor Record Keeping
Keeping accurate payroll records is important when it comes to tax compliance and resolving any disputes. Make sure you maintain detailed records of employee pay, hours worked, and tax withholding for at least three years.
Delaying Payroll Payments
Consistently paying employees late is a surefire way to end up with unhappy workers and potential legal problems. Establish a regular pay schedule and stick to it. If you’re struggling to process payroll on time, outsource the task to a payroll service.
Not Properly Handling Terminations
When an employee leaves your company, you must ensure their final paycheck includes all wages, benefits, and accrued time off they are entitled to receive. Failing to properly handle terminations often results in costly legal disputes.
Ignoring Payroll Tax Deadlines
Payroll taxes must be deposited with the IRS regularly. Missing these deadlines could mean penalties and interest. Keep track of payroll tax deposit deadlines and ensure you’re submitting payments on time.
Trying to Do It All Yourself
If you are feeling overwhelmed or unsure about any aspect of payroll management, it is a sure sign that you need to seek help. Consider working with a payroll service, accountant, or HR professional so that payroll is accurate and compliant.
Conclusion
Managing payroll effectively is essential for the success of your business. Avoiding these common payroll mistakes means you can maintain a happy and productive workforce, avoid legal issues, and stay compliant with tax regulations.
Remember, it’s always better to be proactive and educate yourself in best practices rather than deal with the consequences of payroll errors. Don’t be afraid to seek help when needed – there are plenty of resources available to assist you in managing payroll successfully.
