5 Payroll Mistakes That Could Ruin Your Business and How to Avoid Them

Small business owners have been looking more and more into outsourced payroll solutions to automate what can be a cumbersome process and lead to plenty of potential payroll mistakes—paying your employees and filing payroll taxes.

Payroll is a core part of what makes your business function, how you build trust with employees, and how you manage the often complex payroll tax requirements involved with running a business. With a payroll solution in place, you have a lot less to worry about when it comes to payroll mistakes and paying employees, filing forms, and meeting all your tax requirements.

As a small business owner, what seems like small mistakes can result in huge costs. Most startups and small businesses can’t afford unnecessary fees or expenses. Every dollar has to go to growing and strengthening the business’s balance sheet, and that means being a diligent business owner and avoiding the following top five payroll mistakes.

How to Avoid Common Payroll Mistakes

These are the top five payroll mistakes every business owner should avoid:

1. Misclassifying Your Business’s Employees

With the number of independent contractors on the rise, it’s easy to make mistakes with worker classification. 

But an employee and a contractor are not the same. It’s your job to know the difference between an independent contractor and an employee, as confusing one for the other will have a big impact on your payroll process and lead to many payroll mistakes further down the road.

If you’re unsure which technical term your employees fall under, it’s hugely important you understand by the time you need to file your payroll taxes. Luckily, the IRS provides a wealth of information on payroll taxes and how to classify workers online, and you can learn more by visiting their site.

2. Missing Payroll Tax Deadlines

Just like with personal taxes, payroll deadlines are no joke. Missing a tax deadline is costly, not only for your bottom line, but also for your employees and business in general. By missing a tax deadline, you’re putting your money at risk with fines, penalties, and an accumulating interest that can surprise even the most season business owners.

All business owners are held to a strict requirement that they must report and deposit payroll taxes, both on the federal and state level, by their specified due date. This might be a concern if you file your own payroll taxes, but small businesses that hire a professional service will not receive automatic reminders and should keep the payroll tax deadlines top of mind.

3. Poor Record-Keeping and Data Entry

Even if you hire a professional payroll company, you should never overlook the importance of implementing your own record-keeping system to maintain your payroll. Choosing the right payroll service means something different to every small business, but here’s a tip: it’s better to be safe than sorry.

If you wonder whether you need to save a document, you should absolutely do so for the time being. However, when it comes to payroll records, you will absolutely need to hold onto the following documents:

• Timesheets
• Canceled Checks
• Tax Forms
• Proof of Past Payments

Poor record-keeping has sunk hundreds of small businesses over the years, but your business doesn’t have to be one of them. Take the necessary steps now to avoid payroll mistakes and other tax issues in the future.

4. Inaccurate Employee Information

It might not seem like a big deal, but it’s important that all information regarding your workers is 100% accurate. If you find out an employee’s name is misspelled too late, it could derail your entire payroll tax process. After your employees fill out their W-2s, make sure to double-check the following information:

• Employee’s Full Name
• Current Address
• Social Security Number
• Start Date
• Termination Date (If Applicable)
• Date of Birth
• Payroll Details, Including Hourly Rate, Overtime, Etc.

Remember, taking extra care at the beginning of the documentation process will prove helpful later on, as it only takes one inaccuracy to cause a major payroll mistake and upend your payroll tax progress. As always, it’s best to maintain an organized and easy-to-use filing system to keep important documents, especially for payroll tax season, close at hand.

5. Mistakes When Filling out Forms

When it comes to payroll, you can say one thing for sure: there’s no shortage of forms. Any mistake, no matter how big or small, could result in overpaying or underpaying payroll taxes, huge fines and fees, and could throw off your entire accounting system.

The best way to protect against this is to take the steps above to avoid payroll mistakes in the first place. Consider hiring a payroll service that can handle the above steps with ease, allowing you to focus on what you do best: your small business, which shouldn’t include filling out payroll forms.  

When it comes to payroll and payroll taxes for your small business, there’s no room for error. Avoiding these five top payroll mistakes will put you and your business in position for greater success.

The post 5 Payroll Mistakes That Could Ruin Your Business and How to Avoid Them appeared first on Fundera Ledger.

from Fundera Ledger https://www.fundera.com/blog/payroll-mistakes/