Top Payroll Mistakes and How to Avoid Them

Sharon Boyd has nearly 25 years of experience between both the healthcare and marketing industries. In addition to being an RDH and content writing expert, she also holds a degree in business. Her responsibilities primarily include tackling the communication barriers between small business owners or healthcare providers and their prospective clientele.

Top Payroll Mistakes and How to Avoid Them

For many businesses, payroll and taxes are automated. Whatever you’ve entered into the software gets transferred to the W2 or the 1099. But those forms are only as good as the data that’s been recorded. There are a few common mistakes that get made. If you’re not careful, you could cost your employees or your company extra taxes, fees, or penalties.

Pay On Time

You trust your employees to do their work to the best of their abilities. They trust you to pay them for that work on time. Whether you need to set a reminder for your pay frequency or purchase software to automate your payroll, you cannot break your employees’ trust; their livelihoods depend on you. Also, be aware of bank holidays and company holidays. Checks and direct deposits should be finished by the close of business the day before to ensure your employees get paid on time.

The Right Pay For the Right Time

The number of hours worked and the coding of those hours is a huge issue for many companies. There are two classifications of employees to know: Exempt and Non-Exempt. Exempt means that the employees do not receive overtime pay; they are exempt from the overtime statutes. Non-exempt employees are entitled to overtime pay in the amount of 1.5 times their normal pay rate.

Typically, exempt employees are paid a salary, while non-exempt have an hourly rate; but this isn’t always the case. There are times that salaried employees are able to earn overtime, and there are times hourly workers may not be entitled to it. Make a point of knowing tax laws and your company policies to make sure you are paying your employees correctly.

The other issue involved with this is ensuring your employees report their time correctly. Regardless of whether you use a time clock or a web app, they should be recording their hours daily.

Know Who Works For You and How

One of the top errors seen on tax documentation is whether a person is an employee or an independent contractor. There’s a lot of differences between the two classifications, but the primary one is that an employee has taxes withheld before his paycheck is cut while the independent contractor gets a gross amount pre-tax. Another big difference is the eligibility for benefits like health insurance or retirement, all of which affect the taxable income. An independent contractor who should be coded as an employee could be missing benefits and be taxed at a higher rate than necessary.

Keep Your Documents!

Recording how much you’ve paid each employee and the associated taxes is extremely important. If you discover one of the above errors, it is easier to go back and correct if you have all the documentation. And if the IRS decides to audit your business, all those records will be proof of the work and payments you’ve done. Your business depends on your accurate payroll, so you should make it a priority to process it correctly!