How to Avoid Common Payroll Errors in Small Businesses

Payroll is an essential function in any business, even though it is often overlooked.

Payroll can be a valuable tool for your company to avoid legal consequences and ensure your employees are happy. Unfortunately, payroll mistakes can spread quickly and cause problems throughout the organization. In addition, it can lead to lost time and costly repairs.

Payroll mistakes can be avoided or fixed with good planning. Let's look at why these common mistakes, such as misclassifying employees or miscalculating their pay, are essential.

Here are the reasons you should make these payroll corrections

Payroll is a requirement for all businesses with employees. However, each company may have a different meaning. For example, payroll can also refer to:

• You pay your employees, which includes team member information.
• Each pay period, the amount that employees are paid.
• She is calculating and distributing wages and taxes.

Employers must adhere to the laws in their state when creating a payroll program. For example, California law requires that minimum wages for businesses with more than 26 employees be at least $14.00 an hour and for those with 25 or less, $13.00 an hour.

Satisfaction of employees

Employers who pay employees incorrect amounts or incorrectly deduct taxes will frustrate and worry employees. Unsatisfied employees will wonder if their paycheck will arrive on time and in the right amount.

A team member who miscalculated taxes will be responsible for paying out-of-pocket. The employer will also have to pay additional penalties. Employees unhappy with their work will not be motivated to do the right thing and leave your company in large numbers.

Penalties and prison time

Employers who pay workers $13.00 an hour if they have more than 26 employees could be subject to fines and even jail time. Employees would also have the right to sue their employer for damages that could affect their livelihood, reputation and personal finances.

Wage theft is defined as the denial of wages due to a team member. Fines up to $10,000 can be imposed on the first conviction, and additional imprisonment for subsequent convictions. A judge may consider wage theft "willful" since ignorance of the law is seldom used in court to justify violating the law.

These two reasons are why small businesses must adhere to both federal payroll laws and State-Specific tax laws. Otherwise, you may face serious consequences.

These are the ten most common payroll mistakes in a start-up

Payroll is a complex process, and there are many areas where an organization could make costly mistakes. So let's take a look at ten payroll errors your company needs to fix immediately.

1. Misclassifying workers as independent contractors

W-2 form. The Fair Labor Standards Act offers protections and benefits for employees, such as overtime pay and minimum wage. However, these protections are not available to independent contractors (1099), as the employers who hire them don't pay any of their taxes.

It is possible to find employees and companies if workers are misclassified as independent contractors instead of employees. It can reduce labour costs by up to 30% for some businesses. However, employees will lose their essential benefits and wages, while the government may lose valuable tax dollars. It could eventually lead to over-or underpayment.

2. Incorrectly identifying workers exempted or non-exempt

Exempt employees do not have overtime rights and must finish their jobs, regardless of how long, with no additional pay. However, if they are performing specific job duties that are relatively high-level, these workers are exempt. Instead, they are paid on a salary and make at least $23,660 annually.

Non-exempt employees are treated as exempt employees, and they will not be eligible for overtime or hourly wages. It can lead to wage theft. Most non-exempt employees should not be paid an hourly salary unless they agree to a salary, which is typical for high-ranking jobs.

3. Incorrect overtime payment

Non-exempt workers must be paid time and a half for every 40 hours worked per week. There are additional rules in some states. For example, California workers must be paid overtime if they work more than 8 hours per day, even though they don't work more than 40 hours per week.

Non-exempt salaried workers may also have overtime rights unless they are exempted from overtime under the State Labor Code or if an existing or enforced order (like welfare, child support, or other charges) governs the team member's work hours, wages or working conditions. In addition, employers may use a clock in/time management system for accurately maintaining team member hours.

4. The wrong payroll service provider

It is essential to select a payroll provider that suits your company's requirements. As your business grows, this may require you to switch providers. You should ensure that the payroll company you choose can offer high-quality services such as these:

• Payroll Processing Automated: This automates the most labour-intensive parts of payrolls, including tax withholding, calculations and payment options such as digital checks or paper checks.
• Calculate, Withhold, and Pay Taxes: Corrects mistakes in calculation and payment of taxes. It includes the most common errors like overtime.
• Compliance: Give the appropriate forms to the correct employees. It includes the W-2, W-9, W941, W-9, 1099 and W-9. This information will be accurate and current for payroll service providers.
• New-Hire Reporting Deadlines: There are strict deadlines for new hires, particularly for existing or enforced orders. All reports will be submitted to the appropriate agency on time.

These services should be available to employees via a mobile app. Employees can immediately see discrepancies and take action in time for their next paycheck.

5. Failure to keep payroll records long enough

Start-ups and new businesses often throw away or incorrectly file payroll. It makes it difficult to find them. For not having sufficient records to prove proof, your company could be fined for incorrectly calculated payroll.

Experts recommend that you keep your payroll records for at least three years. The IRS could find discrepancies later on, so it is better to keep your records longer than the minimum required by law. The IRS can notice any payroll error at any time. It's up to the business to prove it. The IRS could find the company if they find out.

6. Only one person is trained in the payroll software

Your staff may become ill at any moment and not file their paychecks or taxes on time. If the primary person cannot work, it's essential to have someone (or more) to back you up. A backup plan is necessary to ensure compliance and staff don't resent a miscalculated or missed paycheck.

7. Not maintaining confidentiality

Payroll information should not be shared with anyone other than the payroll department or senior management team. It means that records should be carefully handled - for example, payroll information shouldn't be printed or left in plain sight on a computer monitor. Your reputation with clients or employees can be affected if you have documents visible.

Instead, keep your payroll documents in a locked cabinet or a password-protected/encrypted file that only required personnel can access to ensure confidentiality amongst staff. Remote employees can access password-protected encrypted files or software that supports Advanced Encryption Standard. AES provides high-level security and optimization.

8. Overpaying or underpaying employees

A team member could be overpaid or underpaid simply by making a mistake in data entry. Underpaid employees can result in a hefty bill when it is discovered. You will need to repay them. It can be difficult (and a lot of trouble) to get your money back if a team member is underpaid. To avoid, this it is best to double- and triple-check the work you do.

9. You missed a deadline for tax

Payroll taxes must be paid by a specific date. Missing these deadlines can lead to heavy penalties or late charges. Therefore, it is essential to know the deadlines to initiate tax payments before the due date. These are the dates you will need to file your income tax returns:

• April 15: Deadline for corporate calendar year-ends
• June 15: Deadline for foreign corporations to end their calendar year.
• October 15: Extended deadline starting April 15.
• December 15: Extended deadline starting June 15

You may need more time, depending on your situation. Or you might need to file more often if you have business income that exceeds a certain amount. It would help if you researched the Federal and State laws in your area before filing your paperwork for the IRS. Otherwise, fees could apply even if you file on time.

10. Late payment of your employees

Late payments can lead to lawsuits against you and cause anxiety for your employees. It could lead to financial hardship for them. It can also signal that your company has a wrong financial position, resulting in employees being afraid of being laid off. Do not place your employees in fearful situations.

Use a to-do checklist or another software that delegate tasks like Asana to ensure your payroll team is on the right track. You can also automate payments and transfer paychecks directly to employees' bank accounts using a hands-free method.

You can keep your employees happy while still being legally compliant

It is crucial to keep track of payroll and other payroll issues. If you do not follow these steps, your business could be in serious trouble. Of course, you don't want to have a lawsuit or employees who are disgruntled and worried about their jobs. But, on the other hand, you can scale your business by taking action now and avoiding these ten common mistakes in payroll.

Disclaimer. The opinions and views expressed in this article are the authors Shalom Lamm.