Whether you do your small business’s payroll with a large payroll provider (software as a service) or a small, hands-on provider, you may be curious about the signs that your payroll is wrong.
Usually, it’s hard to tell if something is wrong until you’re notified by taxing authorities, other agencies, your employees, or your payroll software. When you get these notices, what do they tell you about your payroll?
At CSI Accounting & Payroll, we’ve worked with small business finances for over 50 years. That means we’ve gotten a lot of questions about payroll red flags, including:
- What payroll red flags should I look out for?
- How can a payroll provider help me with these red flags?
Payroll Red Flags
There are quite a few signs that there are issues with your payroll. Let’s talk about red flags from:
- Taxing authorities
- Other agencies
- Your employees
- Your payroll software
Red Flags From Taxing Authorities
One of the biggest red flags is a letter from a taxing authority.
Red flag #1: You may get a letter from the IRS or your state taxing authority if your payroll tax filings are incorrect or underpaid. The letter may show a due date, how much you owe, and penalties and interest.
Red flag #2: You may also be notified if your payments to tax authorities bounce due to insufficient funds (NSFs), meaning you didn’t have enough money in an account for a payroll tax payment to go through.
Red flag #3: Another possibility is a letter saying there are credits on your account but nothing filed. This means your payments went through, but you didn’t file anything indicating where to apply the money.
Red flag #4: Lastly, you may receive a notice from the IRS’s CAWR (Combined Annual Reconciliation) Unit or the Social Security Administration that there’s a discrepancy between your Forms 941 and Forms W-2. This usually means your reported wages or taxes paid don’t match on these forms, often due to pre-tax deductions not being documented properly.
Red Flags From Other Agencies
Red flag #5: Workers’ compensation insurance requires annual audits. If you cannot reconcile your payroll reports with Forms 941 or State Unemployment returns, your insurance auditor will likely flag this as an issue with your payroll and want an explanation.
Red flag #6: If you have employees with garnishments (like child support) that are not being fulfilled, you may be contacted by that agency to find out why the garnishments are missing, late, or incorrect.
Red Flags From Your Employees
Sometimes your employees may have payroll questions that seem simple. However, we encourage you to take them seriously and investigate a little. After all, an employee raising an issue is often the first indicator that something is incorrect after payroll has been run.
Red flag #7: Your employee might have been notified by their accountant that something is wrong with their tax documents, such as their Form W-2. The employee may have even used personal tax preparation software that tells them the numbers are invalid based on auto-calculations.
Red flag #8: Maybe your employee even noticed that they owe a lot of tax or got a huge refund when they didn’t intend to. If they feel their tax owed or refunded does not reflect their Form W-4 withholdings, they may be curious about how you input that information into your payroll software.
Red Flags From Your Payroll Software
Payroll software is usually your first line of defense; it can potentially point out issues before you even run payroll. However, it’s not foolproof, and it can miss some huge mistakes.
Payroll software won’t notice if you input hours or pay rates incorrectly. There’s no way for it to know how your payroll is supposed to be entered.
The same can be said for setting up payroll items. If you incorrectly set up any pay items using the wrong template, the software doesn’t know the difference and will not flag an error:
- Pay items. Categorize as taxable or non-taxable.
- Deduction items. Categorize as pre-tax or post-tax.
- Withholding items. Set up by using rates, tables, and employee Forms W-4.
Red flag #9: Payroll software will, however, alert you of issues when filing, such as not being able to balance daily and calculated liabilities. This could be due to incorrect inputs or incorrect pay item setups.
How a Payroll Provider Helps With Red Flags
When you work with a large payroll provider, you’re really just leasing their software as a service. On the other hand, when you work with a small payroll provider, you get more traditional, hands-on service with a dedicated payroll specialist to help guide you.
Your payroll specialist at a small payroll company (like CSI Accounting & Payroll) can help you with every red flag we mentioned above.
Not sure what a letter from a taxing authority or other agency says? We can help you figure out what caused the issue and how to fix it.
Not sure what to tell an employee who has a concern? Call your payroll specialist, and we’ll help you find the explanation or solution.
Not sure why you got an error from your payroll software? Unlike large providers, we set up your payroll items for you, minimizing the likelihood of errors. However, if you’re still running into issues, you can contact your dedicated payroll specialist directly via email, phone call, or text for quick, reliable service.
Ultimately, you can count on us to resolve payroll red flags. We’ve got your back!
Resolve Red Flags & Avoid Future Errors
Now that you know what payroll red flags to look out for and how a small payroll provider can help you, are you ready to check out payroll services with a small provider?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what a payroll specialist handles for you.
