Understanding business payroll is difficult, but rewarding. Deep knowledge of payroll regulations is critical for the success and compliance of any small business. Unfortunately, even with the best intentions, mistakes can be made.
Due to differing laws from state to state, and even municipality to municipality, it is easy for small businesses to make costly payroll mistakes. Ignorance of the law is no excuse in the eyes of the government, so it is important for business owners to be well-informed.
In this article, we’ll cover some of the most common small business payroll mistakes, and how to avoid them.
The Top 5 Common Payroll Mistakes
Here are a few of the most common small business payroll mistakes below:
1. Not Tracking Overtime
One of the most common small business payroll mistakes is not tracking overtime hours. This can lead to employees being underpaid, or even worse, being paid for hours that they didn’t actually work.
To avoid this, make sure you track overtime hours worked, and calculate the appropriate pay for each employee. You can use payroll software to help automate this process, like a 1099 generator.
2. Not Calculating Holiday Pay
Another common mistake is not calculating holiday pay correctly. This can lead to employees being underpaid or even overpaid. To avoid this, make sure you know how to calculate holiday pay, and factor it into your payroll calculations. There are plenty of online calculators available to help calculate holiday pay — it’s almost always well worth your while to invest in one!
3. Not Factoring in Taxes and Other Deductions
Another mistake small business owners often make is not factoring in taxes and other deductions when calculating payroll. This can lead to employees being underpaid, or worse, having too little withheld from their paychecks, resulting in a hefty tax bill at the end of the year.
To avoid this, make sure you know how to calculate payroll taxes and other deductions.
4. Paying Taxes on Overseas Employees
If you have employees who are working remotely, from another country, you may be tempted to pay their taxes in their home country. However, this can be a mistake, as you may be subject to double taxation.
Instead, you should pay your employees’ taxes in the United States, where they reside. This will help avoid any penalties or fines from the IRS.
5. Not Keeping Up with Changes in Tax Laws
Tax laws are constantly changing, and it’s important to stay up-to-date on the latest changes that could affect your small business payroll. Failing to do so can lead to costly mistakes and penalties from the IRS.
To stay informed, subscribe to a tax newsletter or consult with an accountant who can help you stay up-to-date on the latest changes.
Avoiding Small Business Payroll Mistakes
Prevention is always better than the cure. In this case, it’s especially true. Avoiding small business payroll mistakes is key to ensuring your employees are paid accurately and on time.
There are several ways to avoid payroll mistakes, but easily the most effective is to outsource your payroll to a reputable provider. When you outsource your payroll, you’re entrusting a company with years of experience in the field to handle all of the details for you. From calculating wages and deductions to issuing paychecks and filing taxes, a professional provider will take care of everything for you so that you can focus on your business.
Developing deep relationships with accountants and bookkeepers can also help you avoid payroll mistakes. By having a team of professionals who understand your business and your books, you’ll be able to rely on their expertise to help you stay on top of your payroll — and your finances as a whole.
Finally, it’s important to keep up to date with the latest payroll laws and regulations. This can be time consuming, but it’s well worth the effort to make sure you’re in compliance with all relevant rules and regulations. Failing to do so can lead to hefty fines and other penalties, not to mention a lot of wasted time and energy trying to fix the mistakes you made.
Making small business payroll mistakes can be costly, time consuming, and stressful. By following the tips above, you can avoid these mistakes and keep your business running smoothly.
In summary, business payroll is subject to a variety of technically challenging rules and regulations. Even small businesses can make costly mistakes if they are not diligent in their compliance efforts. By taking the time to understand the basics of payroll and by implementing the aforementioned best practices, business owners can help ensure that their payroll functions smoothly and that their employees are paid accurately and on time.