Small businesses are often fined due to payroll-related issues. Paying your employees seems like it should be pretty easy. However, anyone who has actually managed a payroll knows that keeping track of all of the rules, regulations and deadlines can be a complex process. Many employers who try to manage payroll on their own end up making at least one of these five common mistakes. This guide offers payroll mishaps medical, dental, and other professionals make as well as how to address them.
- Classifying Employees Incorrectly
Some employers attempt to game the system by classifying employees as contractors to get out of paying benefits or erroneously categorizing overtime-eligible employees as exempt salaried staff to avoid paying overtime. According to The Grubb Law Group, classifying employees as contractors makes it so companies don’t have to pay for health coverage, but companies often get caught red-handed doing this. Not only is classifying your employees incorrectly unethical, but it could also lead to worse problems for your company. The Fair Labor Standards Act levies severe penalties for even accidentally misclassifying employees.
- Missing Federal Deposit Deadlines
The date your federal taxes are due depends in part on the total taxes you report on Form 941. While you can sometimes get an extension, the filing dates for federal taxes are not flexible. If you miss the deadline, you could end up paying substantial penalties. According to Ramsey Solutions, if you can’t file your taxes on time, you can get a six-month extension by filling out Form 4868. You will need to do this by the deadline of your tax return due date. This can be a hassle, though, so it’s best to pay on time.
- Keeping Inaccurate or Incomplete Records
Employers are required by the FLSA to keep their payroll records from the past three years. Additionally, many states have their own record-keeping requirements. Records that are missing, incomplete, or inaccurate can put you in violation of the law or get you in trouble at tax time.
- Not Reporting All Taxable Compensation
Federal and state payroll laws don’t just consider wages to be taxable compensation. Tips, stock options, employee discounts, and other non-monetary perks can also be considered taxable income if they are used to compensate employees. Wright Ford Young & Co. warns that even gifts can be considered taxable unless they are for something entirely unrelated to the business, like a birthday or wedding. Failing to report all taxable compensation to the IRS can result in severe penalties.
- Incorrectly Processing Wage Garnishments
Employee wages can be subject to garnishment due to fines, child support, taxes and other reasons. Different types of garnishments have different rules and violating these rules can result in fines. Additionally, if you make a payment that you weren’t supposed to, it is often very difficult to get it back.
What You Can Do About It
If your company is large enough, you can hire your own accounting department to process your payroll and handle your other accounting functions. However, for many businesses, it isn’t practical to pay skilled accounting professionals to be on staff full time.
An alternative is to utilize an online payroll service. These services are experts at what they do. It is their job to stay on top of changing regulations and make sure that your business is always in compliance.
Additionally, many online payroll services offer time-saving features, such as auto payroll. Once you set up auto payroll, you don’t have to deal with payroll every pay period, which can save you several hours per week. You may also be able to use these services to handle your other accounting functions. In addition, they may provide a GPS time clock app that holds employees accountable by logging their location and updates it as the workday progresses.
Making sure your employees get paid correctly and on time is important to you, your employees, and the government. Utilizing an online payroll service can provide you with peace of mind and free up your time and energy to focus on your business instead of keeping up with the latest payroll regulations.
If you have any questions about entrepreneurship, lean startup, design sprint, veteran/disciplined entrepreneurship, or the student success program, contact the editor via top border. This article is courtesy of Marissa Perez of Business Pop – https://www.businesspop.net.