Every business knows that payroll is vital to its operation. However, any problems, however minor, could affect virtually every business level. In fact, payroll mistakes are costing businesses thousands annually to rectify.
That’s why it’s imperative you develop a solid tax compliance and payroll processing plan to prevent possible payroll fees and errors. Here are 5 payroll mistakes to avoid.
1. Payroll Size
When you form a payroll department, it’s imperative you think carefully about the task you need it to perform. Numerous businesses tend to miscalculate at this phase and form a payroll that doesn’t meet their business needs-either too small to handle the imposed administrative burden or too large to be cost effective.
While this mistake might not have instant effects, issues will inevitably arise in case of an unforeseen payroll delay or compliance challenges. Several factors play a significant role here, including your location, average work hours, and location.
Ultimately, the information you collect regarding your forthcoming payroll’s size and shape will guide you in making ongoing decisions regarding the number of administrators you employ, the kind of software they use, and the kind of training they require.
2. Not keeping abreast of new payroll rules, law, and regulations
Payroll regulations and laws are constantly changing, so you must beware of new laws to make sure your company is compliant. In the event that you miss a new law, there’s a chance you’ll lose valuable time trying to alter any payments you’ve made with the previous rule or law. You can ensure compliance by developing a calendar that reminds you to watch for updates to all pertinent laws.
3. Improper Classification of Workers
Keep in mind that while some workers are employees, others are independent contractors and mixing the two categories could be a costly error. You don’t need to pay a contractor overtime wage or minimum wage.
If you misclassify an employee, you’ll need to pay the worker and his or her share of taxes along with interest and penalties. You might owe the employee wages as well.
4. Poor Record Keeping
Ultimately, payroll is centered on small details at every phase of the process. Nowhere is this principle more significant than in record-keeping: from initiating new workers into the payroll system to sustaining their data for audit purposes. However, the failure to keep appropriate payroll records is a very prevalent error among small and medium enterprises.
The dangers of making record-keeping errors are twofold. To begin with, the outcomes of minor mistakes can be amplified if unaddressed and have serious outcomes for the pay cycle. Secondly, tax authorities might penalize your business for poor record-keeping practices.
The complexity and precision for payroll imply that to prevent payroll mistakes, you should ensure that your employees understand and use the record-keeping system efficiently.
5. Late Payroll
You should run payroll using the chosen pay frequency for your workers consistently. For instance, you might have a biweekly, weekly, monthly, or semi-monthly pay period. Your employees depend on obtaining regular wages, so the failure to pay them might affect their trust in you.
Moreover, not running it in a timely manner could make you non-compliant with frequency prerequisites. Choose a regular pay frequency for your workers and follow it. If necessary, schedule a reminder to run it on time.
Make sure you run it with sufficient time for the payment processing to take place. For instance, if it takes four days to process direct payroll deposit, you must run it four days beforehand to make sure the employees receive payment on time.
In conclusion, any business with workers should have a system for managing payroll activities, including the payment of employees, filing all relevant government forms, and prompt tax payment. However, this facet of business is prone to errors, which could be costly. Fortunately, this guide reveals how to avoid payroll mistakes.
Need some help with your payroll? Contact our payroll experts at Out Of The Box Technology to schedule a payroll review.