Payroll is one of the most important responsibilities for business owners. Good payroll practices are essential to keep and motivate employees and to earn their continuing trust. Studies show that employees look forward to payday, even those employees who face no real payday “crunch.” Small business payroll mistakes can wreak havoc on good employee relationships, affecting a business’s financial stability as well as its reputation.
The benefits of good payroll practices start with paying employees on time with no payroll mistakes, thus making a positive impact on employee morale. Employees should feel a positive sense of self-worth because of good payroll practices. And good payroll practices should ensure that a company doesn’t overpay its tax bills.
The Essential Elements of Payroll
The essential elements of good payroll practices include:
- Using the correct payroll forms including W-4 and W-2 forms, and forms 940 and 941.
- Choosing how to pay your employees including payments via direct deposit, paper checks, or pay card.
- Determining a payroll schedule, one that works for employees and the organization. Pay periods can be monthly, semimonthly, biweekly, and weekly. The payroll calendar will also need to include consideration for holidays, quarterly tax dates, and annual tax filing dates.
- Instituting solid processes to avoid any payroll mistakes, including the calculation of various payroll withholdings from each paycheck to prevent any IRS issues.
13 Common Small Business Payroll Mistakes
It is important to institute good payroll processes and to consistently use reliable systems to avoid any of these common small business payroll mistakes:
- Misclassifying workers. Employees must be correctly classified as employees or independent contractors and either exempt or nonexempt workers.
- Paying incorrect amounts. If you want to make employees really angry, pay them the wrong amount. Yet, overpaying employees can become a more complicated problem for a business owner.
- Not tracking employee hours and miscalculating overtime wages. It is important to note that some states have requirements beyond those imposed by federal laws.
- Not reporting all forms of taxable employee compensation.
- Paying incorrect tax rates. This is one of the most common payroll mistakes, because payroll taxes are complicated, and rates may change. In addition, payroll taxes can be required by local, state, and federal entities.
- Paying payroll late and missing critical deadlines.
- Poor holiday planning.
- Not paying within the minimum pay period required by state law.
- Mistaking gross versus net payroll.
- Poor record keeping, poor data entry, and poor historical collection of payroll records.
- Not paying for things like training time for exempt employees, or for the time used to recover from injuries.
- Failing to post the required labor law signage.
- Failing to stay up to date on payroll laws. (This is one of the many areas where an expert third-party payroll service can be very helpful.)
Choose an Outsource Payroll Service to Assist You
Choose Palmetto Payroll. We are South Carolina’s expert payroll partner, serving over 300 businesses throughout South Carolina, and having offices in Columbia and Charleston. We pride ourselves on efficiency using the latest technology and superb customer service. We provide expert payroll, tax depositing, tax filing, Human Resource services, timekeeping, and management reporting.