At one point or another, every business will have to deal with the consequences of a payroll mistake. Indeed, nearly one in every three U.S. businesses are penalized for payroll errors, something that impacts small businesses the most. Mistakes are far more frequent when businesses or individuals attempt to process payroll themselves without the required expertise or, crucially, without using specialist payroll software.
Payroll mistakes have damaging effects on businesses and financially they can hit hard. It’s not just the fines and penalties that are an issue, employers will also lose a large amount of time correcting payroll mistakes – time better spent on other tasks. Most importantly, it’s the employees who will feel many of the effects. Regularly making errors on an employee’s pay may leave them feeling demoralized, disgruntled, and can cause a huge amount of stress. So, we took a look at the most common payroll mistakes and the best tips to avoid making them.
Filing Taxes Incorrectly
One of the most frequent payroll mistakes is filing taxes incorrectly. Which is not surprising because there are so many different taxes to worry about including local tax, Social Security, and payroll tax – and they all have their complications. A simple mistake like inputting the wrong tax rate can lead to expensive consequences. Your business could lose money from overpaying, and you may be hit with penalties for filing incorrectly. Dedicated payroll software, like Paychex, will stop you worrying about your taxes. Paychex takes care of all your tax administration by calculating and filing your local, state, and federal taxes – a huge time saver.
It’s not just tax rates you have to worry about. While your taxes may have been calculated perfectly, that counts for nothing if you miss a crucial tax deadline. The IRS is not known for its magnanimity, so if your business misses a tax deadline it could soon find itself facing legal issues, penalties, and compound interest. Payroll software has your back though. ADP, for example, provides users with a detailed downloadable calendar with all the dates for federal tax deposits and key bank holidays – it’s well worth printing out and pinning to your office wall. The ADP website is also full of useful guides to help you along the way. Importantly, all good payroll companies have expert staff who can help guide you through any issues you may face.
You can run into a large number of issues by misclassifying your workers. One common error is misclassifying employees as contractors – some companies may even try this deliberately as a method of reducing taxes. Of course, regardless of whether this was a deliberate oversight or a simple mistake, there are consequences when the IRS gets involved. Any business that gets caught will soon be made to pay out huge amounts of money – potentially devastating to smaller businesses. Employees can file complaints themselves as well, as misclassification could see them missing out on key benefits. Your payroll software should be able to guide you through how employee classifications work and the customer support will be there to help you through every step of the process.
Poor Time Tracking
In the eyes of an employee, there’s little worse than finding out they’ve been underpaid because their employer entered incorrect hours. This is another mistake that is all too easy to make. Miscalculating overtime in particular has led to lawsuits in the past. Employers also have to worry about making sure breaks and meals are taken into consideration and one frequently over-looked addition is when staff attends company events. Many payroll solutions offer ways of tracking hours that will automatically be added to your payroll processing. One example of this is FINSYNC, which offers its own time-tracking app linked to its payroll software, allowing workers to clock in and out for perfect time tracking.
Data Entry Errors
We all make mistakes, and poor data entry is the most basic of payroll mistakes. It’s easy to type a 0 instead of a 9 and something as simple as that can create a butterfly effect and wreak havoc with your payroll. Now imagine making the same mistake on a Social Security number or tax calculation. Misspelling an employee’s name is another simple error, but it’s a common payroll mistake that screams unprofessionalism. Luckily, many payroll software services are made with these kinds of small mistakes in mind. Not only are you given various instances to check your work, but they will also flag any obvious and glaring errors for you. Even if a silly mistake has meant you need to do a new one-off pay run to correct your error, then a service like Gusto will allow you to run an off-cycle payroll anytime.
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