Did you know that small businesses pay an average of $845 per year in IRS penalties due to payroll mistakes? That’s a lot of money that could be saved by avoiding common payroll errors. As an HR professional or small business owner, it’s essential to get your payroll right the first time. In this blog, we’ll cover the most common payroll mistakes and provide tips on how to avoid them.
Payroll is an integral part of any business, and mistakes can be costly. HR professionals and small business owners need to ensure they are following proper procedures to avoid penalties, compliance issues, and unhappy employees. In this blog post, we’ll provide you with the knowledge you need to avoid the most common payroll mistakes.
Today, we’ll be discussing the most common payroll mistakes that HR professionals and small business owners make and how to avoid them.
One of the most common payroll mistakes that businesses make is misclassifying employees as independent contractors. While it may seem like a simple mistake, misclassifying employees can have serious legal and financial consequences. Independent contractors are not entitled to the same benefits and protections as employees, and misclassifying an employee as a contractor can result in penalties, back taxes, and lawsuits. To avoid this mistake, make sure to properly classify all employees and contractors based on IRS guidelines.
Failing to Keep Accurate Records
Payroll records are a critical part of any business’s financial management. They document employee pay rates, hours worked, deductions, and taxes. Failing to keep accurate records can result in a host of problems, from underpaying employees to failing to file accurate tax returns. To avoid this mistake, invest in a reliable payroll software system that automatically tracks and records all payroll information.
Missing Deadlines for Tax Deposits and Filings
Payroll taxes must be deposited and filed on time to avoid penalties and interest charges. Missing deadlines can result in steep fines and even legal action. To avoid this mistake, establish a regular payroll tax deposit and filing schedule and stick to it. Make sure to also keep up with changes in tax laws and regulations to avoid any compliance issues.
Incorrect Calculation of Overtime Pay
Another common payroll mistake is incorrectly calculating overtime pay. Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay at a rate of 1.5 times their regular hourly rate for all hours worked over 40 in a workweek. Incorrectly calculating overtime pay can result in wage and hour violations and costly lawsuits. To avoid this mistake, ensure that all employees are classified correctly as exempt or non-exempt and that overtime is calculated correctly.
Overlooking Employee Benefits and Deductions
Employee benefits and deductions are an important part of the payroll process. These can include contributions to retirement plans, health insurance premiums, and wage garnishments. Overlooking these benefits and deductions can result in underpaid employees and non-compliance with tax laws. To avoid this mistake, ensure that all employee benefits and deductions are accurately accounted for in your payroll system.
Failure to Stay Up-to-Date with Employment Laws and Regulations
Employment laws and regulations are constantly changing, and failure to stay up-to-date with these changes can result in costly mistakes. For example, failing to comply with the Affordable Care Act (ACA) can result in steep fines and penalties. To avoid this mistake, make sure to regularly review and update your payroll policies and procedures to ensure compliance with all relevant laws and regulations.
Key Takeaways Summary:
Misclassifying employees can lead to costly legal issues.
Calculating overtime correctly is essential to avoid costly penalties.
Accurate record-keeping is crucial to staying compliant and avoiding fines.
Compliance with state and federal taxes is necessary to avoid costly penalties.
Avoiding payroll mistakes is critical for HR professionals and small business owners. By following proper procedures and understanding the common mistakes to avoid, you can save your company time, money, and legal headaches. Stay compliant and keep your employees happy by avoiding these common payroll mistakes. If your company still has payroll questions or concerns visit https://www.highflyerhr.com/contact-us/ today to see how we can make painroll painless!