Mistakes made during the processing of payroll can be some of the costliest for a company, and when a business struggles to perform its own payroll duties due to lack of training, knowledge or experience, mistakes will almost certainly occur, some of which can result in a loss of finances, not to mention, credibility. One way straightforward and cost-effective solution to this is to outsource payroll to a professional company who will deal with everything efficiently and ensure that payroll is conducted within the confines of tax laws and other IRS requirements.
Here are a few of the most common payroll mistakes along with how to correct them:
Incorrect classification of workers
Errors made with the classification of workers can be an expensive problem for any business, but one quick fix that you can perform if you’re unsure how to classify them, is to file a Form SS-8. In doing so, the IRS are asked the question of how to classify employees, instead of you as the employer.
Failure to properly classify a worker can lead to you having to pay the following:
- Appropriate back wages to an employee
- Penalties
- Interest
- Employers taxes
- Employee taxes
Improper tax rates:
When businesses attempt to perform their own payroll, they often make the costly mistake of applying the wrong tax rates, and as tax rates often alter, the mistake can be made frequently.
When applying tax rates its important to consider the following:
- Local income tax
- Social security
- Medicare
- Federal income tax
- State income tax
- Federal unemployment
- State unemployment
Not paying the correct taxes for each employee can result in costly penalties and a company having to pay back taxes, which can come as a nasty surprise.
Late payments:
Every time that payroll is late, employees lose confidence in their employers and morale can hit rock bottom. If you want your employees to continue working to their best ability for your company and retain those workers who are helping make your business function better, then you do need everything you can to avoid making late payments.
Late payments can occur when the following happens:
- An employee is fired, or they leave the company’s employ voluntarily
- Payroll is not carried out efficiently
Incorrect payments:
When underpayments occur, once again, employee morale is dampened, and the same can happen if a worker is overpaid one month and forced to accept a reduced payment the next month to make up for the error.
An incorrect payment can occur when:
- When overtime isn’t calculated accurately
- When payroll is left to the last minute and rushed through
Violating labor laws is a serious matter for any business owner, and so to avoid making costly payroll errors in the future, consider enlisting the services of a professional company who will ensure that no mistakes are made and that you are always in compliance with the law.