Sage Advice US

Top 5 payroll mistakes made by business owners

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.

Instead:

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.

Instead:

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.

Instead:

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.

Instead:

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.

Instead:

Summary

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.

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