5 Payroll Mistakes and How To Avoid Them
On average, small businesses utilize 10 employees to keep everything running smoothly. No one works for free, which makes fulfilling payroll an essential duty. Discover these five common payroll errors to avoid, followed by a few suggestions to sidestep these blunders at your own business.
Common Payroll Mistakes
- Employee Misclassifications
The Fair Labor Standards Act ensures that employees receive important benefits and protections, including minimum wage and overtime pay. Workers classified as independent contractors are not covered under this law, and exemptions exist. Recently, the Department of Labor clarified the distinction between worker classes. Mistakenly classifying an employee as independent or exempt could be a costly error.
- Pay Miscalculations
Tracking the time logged by those paid on an hourly basis is critical to making sure they receive the right compensation. Overpaying staff or not paying them enough creates a mess that drains time, energy and employee morale.
Payment accuracy can typically be improved with the help of time-tracking software, which holds employers and employees accountable. Digitally tracking employee work hours helps prevent time theft, which costs U.S. employers $11 billion annually. One aspect of time theft is buddy punching, when one employee clocks in another employee so that they are being paid, even though they are not present at work. Buddy punching costs employers nearly $373 million on an annual basis.
- Late Payments
Many states have requirements regarding the frequency with which employees must be paid. Even if you do not break the law, workers will be frustrated when you fail to provide their income when expected. Your reputation as a reliable place to work may take a hit, causing the quality and quantity of future job applicants to sink.
Keep enough cash ready so you can always comfortably fulfill your payroll responsibilities. Online payroll services, in conjunction with accounting professionals, can help automate the disbursement and tax calculating processes, as well as help you track time and even manage benefits, freeing you up to deal with other matters. They can also provide early warnings regarding potential cash flow issues.
- Forgetting Taxes
Companies that fail to make proper tax deductions face serious trouble. Besides being vulnerable to hefty penalties, those found guilty of intentionally skirting the law may be sent to jail. Providing employees with the right forms is critical to avoiding danger. You should give each full-time worker a W-2 form and distribute 1099s to all contractors. Double-check that the tax rate you are paying is correct since this amount has a tendency to fluctuate. Keep an eye out so prompt adjustments are made.
- Incomplete Documents
Employers are required to keep at least three years of employee payroll documentation. Some states mandate that records go back even longer. Basic information you must maintain includes dates of payments, wage amounts, and hours worked. Other important elements comprise time off taken by workers, benefits provided, and bonuses granted. Besides offering clues that can help sort out current problems, saving this data keeps you protected in case of an audit.
Preventing Payroll Mistakes
To hold payroll dilemmas at bay, you must adhere to a few common-sense guidelines.
- Start using software that makes the payroll process as smooth as possible. Make sure any digital payroll system you choose is up to date. Research new programs and tools as they become available. There may be fresh options better suited to your needs.
- Stay familiar with payroll laws to keep up with new developments. Adjusting quickly when changes are made helps prevent possible future complications.
- Run numbers ahead of disbursements. Double-checking deductions and dollars on hand can head off major trouble. Create a verification checklist that you can swiftly review before each payday.
Administering payroll is an essential duty for every company that has paid staff. Stay on top of this recurring task to ward off costly and distressing snafus that could derail your business.
If you need help managing your payroll as well as your HR processes, connect with Advantage Benefit Solutions. Our advisors can guide you toward the best solutions to help your company level up. Reach out today for a consultation.
