Payroll Mistakes Made by Small Businesses -- And How to Avoid Them
Perfecting your management of payroll duties is important if you want to make your small business a success in the long term, and yet there are plenty of pitfalls which plucky young firms can fall into in this arena. With that in mind, here is a look at the primary payroll mistakes aspiring enterprises can make and the best ways to sidestep them yourself.
Tax inaccuracies & errors
Figures show that four out of 10 small businesses are fined by the IRS each year because they have not properly covered their payroll tax obligations, and this can end up costing hundreds or even thousands of dollars. Mistakes are often made by overlooking local, regional and federal tax rules which apply to your organization, or by failing to stick to payment schedules.
Outsource to a quality payroll service
The obvious solution to overcoming tax inaccuracies and missed payments is to rely on a third- party payroll service to help automate a lot of the more complex aspects involved. There are of course lots of different services out there that can help you achieve this, so it is important to weigh up your options and compare the packages available. For example, looking at Quickbooks vs. ADP is a good way of assessing which of these two top contenders is right for you.
Employee status issues
Another payroll problem that can arise all too often is that of failing to distinguish between full time employees and any contractors you work with as part of your day-to-day operations. This is not only relevant from a tax perspective, but also when it comes to calculating benefits and other payroll elements which may or may not apply depending on the status of the individual in question. Both employees and contractors could become disgruntled as a result of a snafu here, and you could also fall foul of the regulator’s wrath as well.
Ensure accurate payroll details
The only way to combat issues with the way that employee status is handled in payroll is to keep the details you use up to date and ensure that you create a clear distinction between permanent team members and any freelance operators you engage with.
Pay Stubs are still part and parcel of the payroll process, and yet start-ups and small businesses may not feel obliged to pass them on to employees at the end of the week or the month, or may simply forget that this is something which may be expected of them. While there is no federal law mandating the use of paystubs, certain states will have regulations in place regarding them, so you cannot afford to leave these out of the equation.
Leveraging digital tools
Once again, modern services ride to the rescue of small businesses that need to generate pay stubs, and while you can still offer paper print-outs if you wish, it is now perfectly acceptable in many places to opt for digital equivalents. Being able to email employees and contractors their pay stub so that they have it for their own records, without also burdening them with a piece of paper which could go missing or be easily stolen, is definitely one of the boons of the current era.
While payroll management is an ongoing process which feels very of the moment, it is also necessary to remember that you will be expected to hold onto the data you generate so that it can be referred back to at a future date if you are audited. If you do not keep this information in a form which is both easily accessible and secure, as well as generally well organized, then you could face an uphill struggle further down the line.
Convenient cloud storage
Businesses of all sizes are choosing to outsource their data storage needs to the cloud, which is especially impactful in a payroll context. In fact, many of the best payroll software solutions mentioned earlier will take care of your storage requirements for you, giving you a centralized hub for all of the critical information that can quickly be accessed when the time arises.
Over or under payment
Paying employees too much or too little is both a frustration for them and an administrative annoyance for the organization, yet it can occur all too easily if you are not vigilant about the amounts that are going out at the end of the month.
Double-checking key figures
Both in terms of getting payment amounts correct and more generally ensuring that you do not make major payroll mistakes, it is definitely worth being vigilant and making manual checks from time to time. Even in an environment where automation is helping to streamline lots of payroll management duties, human error can still come into play, so do not get complacent.