Payroll processing is an integral part of any business - whether big or small. But the process can be quite complicated, and employers can make unintentional mistakes.
Besides weakening your business reputation, payroll errors can also severely affect your payroll structure. You may have a hard time tracking all the employee records in your organization, in addition to accumulating non-compliance fines.
Still, as your business grows, you need to understand how these mistakes happen and what they can cost you. Learn more about common payroll errors and their impact on your business.
1. Assigning a Worker to the Wrong Tax Category
Placing one of your employees in the wrong tax category can leave you vulnerable to hefty fines. Generally, workers can be categorized into any of these four groups:
- Employee
- Independent contractor
- Statutory employee
- Statutory non-employee
Each of the categories has different tax requirements. You can go over the
IRS guidelines
to get a better understanding of employment categories.
Unfortunately, classification mistakes are possible, and your business could be flagged for audit if such errors are suspected. You could be on the receiving end of unexpected penalties, whether the errors were made on purpose or not. Avoid such inconsistencies by keeping meticulous employee records, something that a qualified accountant can help with.
2. Missing Tax DeadlinesBusinesses usually must pay taxes on behalf of their employees. However, due to the complexity and effort involved, you might miss tax deadlines. In doing so, your company reputation takes a hit, and you risk having disgruntled employees in your business.
Unfortunately, delays are subject to heavy penalties that could cripple your business operations. If you have trouble keeping up with bookkeeping and meeting remittance deadlines, a qualified tax accountant can make things easier for you. They can keep you updated on every crucial development and ensure that your payroll information is submitted to relevant authorities on time.
3. Miscalculating Overtime Pay
Miscalculation of overtime hours can be a nightmare for both your business and its workers. Correcting such errors could take time and disrupt the business atmosphere. Your employees may feel discouraged if they have to pay the money back to the company because of overpayment issues.
Similarly, underpayment could make your employees sue your business over unpaid wages. You'd eventually have to deal with the financial burden that comes with miscalculations, including back pay and penalties.
To avoid inaccuracies with overtime pay, you could split normal wages from overtime pay. A clear distinction between the two payments helps you avoid any consequences of wrong calculations. Keep your state's
overtime wage laws
in mind to be on the safe side.
Hiring an experienced payroll services expert can take the load off you, and you'll have time to focus on other critical aspects of your business.
4. Failure to Maintain Accurate Payroll Records
The payroll record process can be rather tedious. You have to double-check employee information step by step, ensuring that you accurately document the hours they've worked, commissions and leave earned, and other relevant information.
Payroll records can hold large volumes of information that may be difficult to keep up with. Besides, these records have many compliance requirements, specific to all your employees.
Sometimes, certain authority agencies may want to go through your payroll records to validate unclear data. If you can't get a hold of all the relevant records, you could face heavy fines and penalties. Additionally, an employee may sue your business because of a payment problem. Your records can serve as good evidence but only if you keep accurate payroll information.
The payroll process doesn't have to be a nightmare for your business. With the help of an expert, you can avoid unintentional mistakes that could complicate your operation. If you need reliable payroll services, contact us at
Williams & Associates Tax Services
today.
