Many business owners fail to consider all of the difficulties that arise when it comes to payroll. A simple error could cost you the trust of your staff and even cause reliable, talented individuals to resign. In addition, these five mistakes could cost you thousands of dollars in penalties, along with hours of time correcting errors.
Below are some of the more common errors, but there are certainly more errors that can take place if your business is running payroll manually.
The 5 Most Common Payroll Mistakes Small Businesses Make
Misclassification of Employees
Throughout the last few years, it has become increasingly common for businesses to hire non-traditional employees such as consultants, freelancers, independent contractors, and part-timers. Hiring this type of talent results in labor costs savings, reduced liability, and flexibility in hiring and firing.
These benefits may sound appealing for your small business, but can also lead to misclassification of employees—meaning that workers have been labeled as independent contractors instead of employees. The Department of Labor is cracking down on employers who are misclassifying employees as contractors, so it’s important to keep informed about changing labor and tax laws.
Inaccurate Information on Forms
Poor data entry is an extremely common mistake among small businesses. Inaccurate records can lead to discrepant or delayed tax filings. These issues can result in costly fines and penalties that you shouldn’t need to worry about as a small business owner.
Always make sure you have the correct data for your employees, such as:
- Full name
- Official start date or termination date
- Date of birth
- Tax file number
- Current address
- Payroll details (Hourly rate/salary, employment period, etc.)
Not Having Important Reports on File
When it comes to payroll, employers are legally obligated to keep certain documents on file for each and every employee. In general, it’s mandatory to keep records and related documents such as time sheets, I-9, W-4, pay stubs, etc. for a specific period of time. Be sure to understand federal and state requirements for your particular business.
Neglecting to Run Payroll on Time
With CEOs, presidents, and managers busy at all times of the day, it’s understandable that employers may fall behind when it comes to payroll. Not only will the result be displeased employees, but potentially expensive errors if you’re rushing through the process. Staying on top of your payroll system in an organized way will save many headaches and disgruntled employees.
Not Automating Payroll
It’s no surprise that the vast majority of small business owners would greatly appreciate a few more hours in their day. Running payroll manually requires more effort on the owner’s part and has a higher risk of error. Using automation to conduct payroll is often overlooked by small businesses, as they feel they might not be the right candidate. This is a common misconception, as there are several options when it comes to automating payroll such as payroll software and both national and local payroll providers.
Local payroll services like CSI Accounting & Payroll provide all the security and options that a national provider would, as well as a personalized connection with your small business. Eliminate the monotonous task of creating spreadsheets and time card notes, and consider automating your payroll process.
Recognizing what mistakes to expect, how to steer clear from them, and what to do if one occurs can help guarantee your business runs properly. If you need any help with your payroll processing, consider bringing local experts into the mix. See if a partnership with CSI works for your business with a complimentary consultation.