These 6 Mistakes Can Cost You Money on Payroll
Regardless of what type of business you’re in, your employees are your most valuable resource. Ensuring that they’re happy and fulfilled in their jobs is critical to ensure the success of your company. One of the most basic ways to increase employee satisfaction is to make sure that payroll is done correctly. Even a few basic mistakes while completing payroll can lead to a lack of confidence in the company from your employees. If you want to maximize the chances that your employees are happy, here are a few mistakes that you’ll want to avoid on payroll.
1. Not Allowing Enough Time to Process
One of the most common mistakes that businesses make is not allowing themselves enough time to process payroll for employees. When processing payroll, it takes a certain amount of time to transfer the money between banks and to process the transaction. If you don’t do it in time, it could result in late payments and unhappy employees.
For example, let’s say that you normally have payday on every other Friday. One week, you get tied up doing something else for the business and wait until the Thursday before payday to start processing everything. By the time you’re done processing the payroll, it’s too late to get the money in the employee’s accounts by the next day. With so many things popping up on a daily basis as a business owner, it’s sometimes easy to get behind. If you let payroll become one of them, it could lead to unhappy employees and mistakes in processing.
If you try to rush through payroll to make sure that it gets to the accounts in time, then there’s a chance you’ll make a mistake paying one of the employees. When you’re rushed, the likelihood of errors increases.
If you wait too long and try to speed up the money transfer process, you might also incur extra fees to expedite the payments. While it may help you avoid unhappy employees, it can be expensive.
2. Classifying Employees Wrong
One of the common mistakes that businesses make when doing payroll is classifying their employees incorrectly. For example, they call them an independent contractor, when in reality, they are actually an employee. If you classify someone incorrectly for an extended period of time and then get audited, you may have to pay back payroll taxes that you missed from before. If you classify multiple employees incorrectly for an extended period of time, it could amount to a significant amount of money that you have to pay retroactively. Besides the back taxes, you may also have to pay penalties, depending on the situation. It’s a lot easier to just classify employees correctly from the beginning than it is to go back and fix things later.
3. Not Keeping Records
Any documents that are associated with your payroll processing should be kept for an extended period of time. You should keep them for at least four years and possibly even longer. Documents like W-2 forms, time sheets, pay stubs, and anything else that you think might be relevant should be kept on hand at all times. Keeping everything organized is also important. If you’re audited, you need to be able to produce a specific record from a given time period. If you can’t produce the record, then you may be fined or a deduction from your taxes may be disallowed.
4. Not Getting Payroll Taxes Paid in Time
Paying payroll taxes is a big expense for most businesses. It directly adds to the cost of having an employee, and it adds up quick. While it’s not fun to pay these taxes, you better make sure they’re paid on time. If you don’t pay them by the due date, you can be hit with substantial fines from the IRS. In many cases, you’ll pay a 10% fine for not depositing the money on time. If you are required to pay local and state payroll taxes, there may also be separate fines or penalties from those entities as well. It’s in your best interest to pay the taxes on time and save your money.
5. Not Completing Forms Properly
When paying payroll taxes, you must fill out payroll tax forms to go along with your payment. If you don’t put numbers in the correct column, don’t do the math right, or make some other simple error, the amount you pay could be wrong. This could be viewed as underpaying the required payroll taxes, which may trigger penalties and fees. When filling out the forms, it’s a great practice to go back over the forms and the math a second time before you submit them. In addition to double checking the form, you also need to make sure that it is signed in the proper location. Failure to complete any of those steps may cost you some money.
6. Incorrect Employee Details
When you hire a new employee, you’ll have to enter all of the pertinent information about them into your payroll processing program. You have to enter information such as their name, address, hourly rate, their employment start date, Social Security Number, and other identifying information. If you do not fill out the information correctly, it could result in incorrect payroll taxes being paid. This can lead to penalties, fines, and trouble for your employee along the way.
When it comes to doing payroll, many entrepreneurs try to handle it on their own in an attempt to save money. While this sometimes works out, in many cases it leads to trouble. If you are worried that you might make some of the earlier-mentioned mistakes, it may be in your best interest to consider outsourcing your payroll services to a professional. In many cases, you can have payroll handled for you for a fraction of what you expect it to cost. It’s more affordable than having a full-time employee handle it for you, and it allows you to focus on your primary responsibility, which is running your business successfully. Finding a qualified payroll service can be a real money saver for your business.