Processing payroll manually opens your company to the risk of making common payroll mistakes that could cause a significant loss of revenue. From the Internal Revenue Service (IRS) imposing penalties to overpaying employees, these payroll mistakes are all too easy to make. We review some of the top payroll mistakes we see and how to avoid them in this blog.
Misclassifying Employees as Independent Contractors
Your company could face federal sanctions in addition to IRS fines for not withholding and remitting taxes for employees incorrectly classified as independent contractors. If you feel uncertain about how to make the right selection, review these IRS guidelines on regular employee vs. independent contractor classification.
The payroll department must also pay non-exempt employees overtime wages at one and one-half times their normal hourly rate if they work more than 40 hours in a calendar week. Failure to classify workers correctly and to pay overtime to hourly employees are both violations of the Fair Labor Standards Act (FLSA).
Having Employees Record Hours on Paper Timesheets
Using paper timesheets puts your business at an especially high risk of payroll mistakes. Here are some specific issues with this timekeeping method:
- Employees may fraudulently list times they didn’t work. Fudging a timesheet by 15 minutes a day may not seem like a big deal, but even these small overpayments can add up to a huge financial loss if enough employees do it.
- Paper timesheets require the payroll department to spend time on data entry, a non-skilled task it would be better to outsource.
- Payroll representatives are human and are bound to make data entry errors that could cause overpayment or underpayment to employees.
If your company still uses paper timesheets that someone must manually enter, upgrading to an automated system is the best way to ensure payroll accuracy.
Not Reporting All Taxable Employee Compensation to the IRS
Certain benefits employees receive are subject to federal taxes and potentially state taxes as well. Common examples include employee discounts, bonuses, and prizes along with stock options and some travel expenses. When in doubt if a specific form of employee compensation is taxable, don’t hesitate to obtain resources directly from the IRS to avoid the possibility of fines later.
Failing to Make Payroll Deposits on Time
Every business must make federal and state payroll tax deposits according to a set schedule. You can find this information on IRS Form 941 for your federal withholding and reporting obligations. The IRS doesn’t consider not knowing the deadline a valid reason for not paying on time, which means your company could face heavy fines for late payroll tax deposits and reporting.
Palmetto Payroll Guarantees Accurate and Timely Processing
Running a business is enough work without having to worry about costly payroll mistakes. We invite you to contact Palmetto Payroll today to learn more about our services and cross one more thing off your to-do list.