It is important to avoid making mistakes when managing your payroll
Making payroll mistakes can be costly to your business. The IRS issued over 5 million fines linked to payroll taxes in 2019, totaling $13.7 billion. But a lot of common mistakes can be easily avoided.
To help your business make payroll decisions in a way that reduces payroll taxes and protects your business from penalties, we’ve outlined some of the mistakes you can avoid.
Run Reports to Flag Up Errors and Inconsistencies
Employers utilize a salary report to go through their tax responsibilities and financial information. Rates of pay, working hours, cumulative overtime, wage-reduced taxes, employer taxes, holiday balances, and other information may be included.
A liability report shows how much money the employer must pay for a specific period of time. It usually includes salary and tax obligations owing to employees, but it does not include a payroll provider’s service fees.
Preventing payroll errors saves time and money compared to correcting a mistaken payment or tax deduction. Employers may utilize payroll software that offers a comprehensive payroll summary, but they can also develop and implement processes to reduce payroll errors.
When selecting payroll software, make sure that you select software with built-in systems for payroll and payroll tax compliance.
Finally, make sure you check for expiration dates and check that your employees can access their paychecks from the pay portal.
Be Aware of Overtime Hours
Overtime pay must be calculated correctly. Overtime compensation differs from regular salary. If you don’t pay your employees the correct overtime rate, you may have to pay back wages, penalties, and interest.
Businesses must give employees more than 40 hours of work in one pay period to qualify for overtime pay under the Fair Labor Standards Act (FLSA). The FLSA allows an employee to earn an average of 1.5 times an employee’s regular hourly rate.
Correctly Classify your Employees and Contractors
When you employ your team, the majority of your decision will be based on their tasks and the framework in which each team member is classified. For instance, when you hire a freelance graphic designer to help you with a short-term job, such as designing a logo for your business.
If you hire an hourly employee to work on the sales floor for a few shifts a week, they are not exempt. In addition, if you hire a marketing vice president to work for your company, he will be excluded.
These classifications are crucial to both you and your employer’s taxation – and if an employee is mismanaged, whether as a contractor or as a non-exempt employee, it may lead to significant difficulties down the road.
Misclassifying employees may be one of the most costly payroll mistakes for retailers, so make sure you understand each classification and categorize each individual straight away.
Keep your Payroll on Schedule
You must constantly keep payroll according to your employees’ pay schedules. For example, you may pay your employees weekly, twice weekly, half-monthly, or monthly.
Make sure to schedule your payrolls so that you have enough time to handle payments. Consider the case when processing direct payroll payments takes four days. You should pay four days in advance to ensure that employees are paid on time.
Your employees rely on consistent pay. If they don’t pay, their trust in you may be shattered. You also won’t be able to meet the state’s pay frequency requirements if payroll isn’t operating on schedule. Choose a regular pay schedule for your staff and stick to it. If required, set a reminder to perform your wage on time.
Make Confidentiality a Priority
Payroll should always be done in complete secrecy, even if your company just employs a few people, to avoid errors. Payroll information should be kept private and accessible only to the payroll manager and you, the business owner.
Make sure your payroll software is secure and only available to those who need it. You should also provide adequate training for your payroll staff so that they are aware of how sensitive data is handled and what to do in the event of a data breach.
Be Aware How to Handle Garnishments and Levies
The courts enable claimants to collect money from an employee’s paycheck as repayment for debts owed. But it is the employer’s responsibility to withhold the amounts ordered by the courts.
It is your responsibility to retain the information, write a check, and transmit it to a third party. Workers who are required to pay support through payroll deductions are subject to the same rules. Certain wage taxes may also be imposed.
Your employee’s record can be promptly entered after the government has provided garnishments and other costs. Discuss with the employee what options may be available, including:
- Pay-as-you-earn (PAYE) withholding;
- An installment plan if your employee would qualify.
Always be Prepared with Backups
If your HR manager or the person in charge of your payroll is on holiday or unwell, the IRS and the state still need payment on time, just like staff waiting for paychecks.
If and when this happens, you should have more than one person who understands and manages your organization’s payroll operation. If the computer is down for whatever reason, a manual backup is required to handle all payroll tasks.
On the other hand, if your payroll software has crashed, you should have a reliable recovery system, because your company’s payroll and systems are no longer safe to rely upon. There is always a chance that you could lose the entire payroll data and systems.