One of the most vital tasks of a business owner is the proper compensation of employees for services rendered to the enterprise. Correct pay is an essential pillar of a healthy employer-employee relationship. It is not just a matter of fairness, but the consequences of failing to assess a worker’s pay immensely affect employee morale. Taking this into consideration, a business owner should consider it his obligation both to his employees and to the government to do payroll accurately and on time all the time.
Enumerated below are the top payroll mistakes to avoid for trouble-free payroll management:
1. Inaccurate Valuation of Workers’ Wages
With a lot of variables to take into consideration, like the number of hours logged, different rates per day or hour, number of paid leaves, absences, and holidays, to name a few, it is easy to get each employee’s pay wrong. Just too many numbers to juggle. To avoid miscalculations, here are a few guidelines for business owners to follow:
- Avail of payroll software for correct calculations
- Refresh on net pay calculations
- Understand how deductions work
- Calculate overtime work correctly
- Double and even triple-check calculations if doing payroll manually
If a business owner does all the calculations by himself, mistakes are likely to happen more frequently. Hiring a payroll company can prove to be cost-effective, considering all things.
2. Use Of Wrong Tax Rates
Tax rates can differ from year to year, and if an enterprise’s database is not up to date, this could lead to payroll issues. The use of wrong tax rates means that all calculations are wrong, and the business could be penalized with fees and interests to make up for the blunder.
Business owners should keep an eye on updates on tax rates such as federal income tax, state income tax, and local income tax, amongst others. Using a reliable cloud payroll is highly recommended, as it automatically updates for tax changes.
3. Failure To Differentiate Between Exempt And Nonexempt Workers
Proper identification and classification of which employees are exempt from those who are nonexempt is crucial in keeping a correct payroll.
Exempt employees are not covered by the Fair Labor Standards Act (FLSA) and are not entitled to overtime pay. Owners should keep in mind that to be classified as nonexempt; an employee should either be paid by the hour or earn below the exempt threshold. Not having executive, administrative, or professional job duties also qualify an employee to be exempt
4. Employee Misclassification
An employee should be able to determine if a worker is an employee or a contractor. To avoid mix-ups, business owners should know the difference between the two.
An employee is someone hired by the owner and owed wages. Employees are subject to FLSA requirements, have their employment taxes deducted from their checks, and receive form W-2 at year-end.
A contractor, on the other hand, is someone who performs specific tasks for the enterprise for a fee and whose service is also available to other parties. They are not subject to FLSA requirements and receive form 1099-NEC at year’s end.
5. Inability To Meet Payroll-related Deadlines
Business owners should be vigilant deadline trackers for all things related to payroll. Employers owe it to their employees and the government to ensure that workers are paid correctly and punctually and taxes are tendered to the government accurately and on time.
It would serve entrepreneurs well to be highly organized, set reminders to run payroll, remit taxes, and use full-service payroll software if available
6. Failure To File Tax Forms on Time
Business owners are required to send out copies of form W-2 to employees and other parties by January 31 every year. Missing this deadline could cost businesses a pretty penny.
Year-end is always a mad season, making it easier to forget about tax reforms at year-end. It is best for employers to set reminders or use a payroll service that will take care of it on their behalf
7. Lack Of Diligence in Maintaining In-Depth Payroll Records
Like it or not, business owners are required to be record-keepers and archivists of their own enterprises. This includes payroll. The lack of proper record-keeping could be a source of major problems when a firm comes under audit.
A way of organizing records should be in place and thoroughly implemented. Employers are advised to hold on to payroll records for at least three years. Payroll records should include withholding tax forms, payroll taxes, benefits and deductions, hours worked, time off info, gross wages, and pay rate details.
8. Inefficient Payroll Process
An entrepreneur with a poor payroll process finds himself scrambling at the last minute every pay period to run payroll. Running out of time all of the time indicates that payroll processes should be reevaluated. For some businesses, outsourcing payroll processes could be the only recourse.
Doing proper payroll is a discipline that is developed over time. Nobody starts a business for the first time and gets it all right. It can be overwhelming, especially for those without bookkeeping training. It requires ample diligence and perseverance on the business owner’s end to learn how to navigate the seemingly labyrinthine world of payroll management.
Where Cloud Friday Accounting Comes In
Cloud Friday is the ideal choice if you’re a small business owner looking for better ways to manage your payroll system. Cloud Friday Accounting can take payroll management heavy lifting out of your hands, so you may devote your precious time to managerial tasks and focus on how clients and buyers can better be served.
Don’t burden yourself with the tedious process of handling payroll. Let our team address your payroll management needs. Set up an appointment with us to discuss how Cloud Friday Accounting can support your small business concerns so you can focus on growing your business.