Guest Post: Common Payroll Errors You Should Avoid as a Business Owner
This guest post was written by Amber Ramsey. Amber is a career woman who got her start in the corporate world. Her fire, spirit, and creativity weren’t something that could be contained, and she found she was better suited to the entrepreneurial lifestyle. You can read more of her work at learnitforlife.info.
Common Payroll Errors You Should Avoid as a Business Owner
Payroll is an essential business task, but it can be extremely time-consuming. By working to find the right model, vendor, and technology to streamline the process, you can focus on your core business competencies. This will also help avoid some of the more common payroll mistakes.
Using the wrong payroll model.
There are many different payroll platforms to choose from. Ideally, you will find a reliable provider from the get-go that you can rely on for years to come. The ideal payroll solution will come chock full of features that go beyond just issuing a paycheck. Look for an all-in-one accounting system that offers everything from time tracking and scheduling for employee and payroll management to batch invoicing and expense tracking to help you keep an eye on business growth. Doing so will help you streamline not just your payroll but the overall management of your business.
Incorrectly classifying your workers.
Make it clear whether your workers are employees or independent contractors. This impacts major payroll issues, such as whether you withhold Social Security taxes from the worker's pay or otherwise. This is also a matter of workers' rights. As the Department of Labor explains, people who are misclassified as independent contractors when they are actually working as employees are denied important protections and benefits.
Keeping incomplete or sloppy payroll records.
Payroll records include a lot of important information. A single employee's file should list their Social Security number, full name, and birth date, while pay-related documentation must include pay records, the dates wages are paid, total daily earnings, documentation of raises, expense reimbursement forms, and more.
Yes, that's a lot of paperwork, and you want to keep it well-organized. As Business Management Daily explains, the IRS does conduct payroll audits to ensure employers are meeting their obligations, such as withholding FICA taxes. An audit will involve checking payroll files, which you need to be able to provide.
Not organizing, securing, and backing up your files.
Don't just cram all that payroll data into boxes in your business space or shove all your digital payroll files into a random folder on your work computer. This mass of information should be carefully organized to ensure easy access. This will also make your bookkeeping and tax filing easier. You will be able to find the documents you need faster.
Additionally, you should be securing this sensitive data, keeping it safe from third parties, and backing up your files through cloud-based storage and/or external hard drives.
Failing to keep track of deadlines.
Staying on top of payroll means staying on top of deadlines. For example, you have to be vigilant about federal deposit deadlines. Income and FICA tax deposit due dates may be annual, quarterly, monthly, or semi-weekly. You also need to keep track of big-picture due dates, like tax filing deadlines, which will require up-to-date payroll information.
A good payroll system can expedite matters, making it easier to gather, track, and organize your documentation. With the right payroll service, you can file 1099s online, expediting paperwork processing and making it easier to pay 1099 contractors. It also removes much of the guesswork that surrounds the ever-changing 1099 guidelines. For example, did you know the IRS updated the 1099 designation? The 1099-MISC no longer applies to nonemployee compensation; the 1099-NEC is now specific to contractors and independent workers, while the 1099-MISC is sticking around for different types of payouts.
Payroll is an unavoidable part of owning or managing a business. While it might seem daunting at first, the right tools can help. The above guide provides tips and tools to help you overcome some of these hurdles, helping you to avoid the most common payroll mistakes.