As an employer, paying your staff and paying the Internal Revenue Service (IRS) on time are two important legal obligations. Failing to satisfy either of these obligations can cause your business unhappy employees in addition to potential financial trouble.
Avoid thorny payroll issues by avoiding these five common payroll mistakes and applying a few easy fixes.
Mistake #1. Paying late
Employees have worked hard, put in the hours and they rightfully expect a timely paycheck. At best, it is demotivating to have to wait to be paid, even if a good reason is provided. At worst, you risk losing your best people.
Plan ahead to ensure your accounts have enough to cover payroll. And don’t forget about the promised quarterly or end of year bonus.
Mistake #2. Failure to note exceptions
Sometimes employees take unpaid sick days, holidays, or a leave of absence. These exceptions can easily be missed by payroll staff—and reversing an overpayment can cause your employees considerable stress and financial hardship.
- Make sure managers communicate approved time off clearly with payroll staff to ensure exceptions don’t fall through the cracks.
- Use an automated payroll system that integrates seamlessly with employee time tracking tools.
Mistake #3. Misclassified employees
Small business owners sometimes confuse independent contractors with employees—but accurate classification is necessary to meet your tax obligations. With employees, you need to withhold income taxes, pay social security and Medicare taxes, and remit unemployment tax on wages.
- Contact the IRS to learn about the correct classification for your team members to avoid nasty fines and tax penalties.
Mistake #4. Human error
In a busy business, it’s easy for a mistake or miscalculation to slip by harried payroll staff—especially if you’re using a manual payroll system. A costly end of year tax adjustment can result when the error is finally discovered.
Consider switching to an automated payroll solution built into your accounting software to minimize human error.
Mistake #5. Unpaid taxes
Business owners are typically time-strapped and may not remember to file their taxes on time. This could lead to hefty penalties imposed by the IRS.
- Take note of filing dates early and set aside, at a minimum, 10% of an employee’s annual salary for taxes.
- File your tax return on time even if you can’t pay what you owe in full. That way you won’t be charged the failure to file penalty.
- Use an Electronic Federal Tax Payment System so payroll tax payments are automatic.
By re-evaluating your payroll processes, you may decide it’s time to make some changes. Look into streamlining your systems to improve employee satisfaction and increase overall productivity in your finance department.
- Speak with a small business tax expert to ensure your payroll practices follow local and state laws.
- Find a payroll software designed to make your life easier whether your business has 1, 10 or 100 employees.