Top Payroll Mistakes (How You Can Avoid Them)

At your company, a seamless payroll process is like oxygen: when it’s present, you hardly notice it; when it’s not, you’re stuck in a thought loop. As a result, one of the most crucial yet least recognized tasks in a company is payroll. When handled properly, payroll can both keep workers happy and keep your company out of legal trouble. On the other hand, when payroll errors occur, their effects can be felt throughout the whole business.

Fortunately, there are steps you can do to lower the risk of payroll issues and lessen the impact they have on your employees and organization. Which payroll mistakes should you be aware of and how can you prevent them? Let’s find out.

This post will cover the most typical payroll issues, their potential impact on your business, and preventative measures. After reading this, you’ll understand the best practices for protecting your company to reduce risk, improve compliance, and raise morale.

What are the top payroll mistakes to be aware of?

The payroll procedure might be prone to errors, but minimizing mistakes is essential for the good of your staff and your company as a whole. Knowing what mistakes are and how to avoid them is the first step.

The following are the most common payroll errors to avoid:

How to know it is time to outsource your HR services

Outsourced HR may be the answer you need if your business is expanding and your HR duties are becoming increasingly burdensome. Here are five signs that it’s time to outsource the HR function at your business.

1. Missing Deadlines
2. Submitting the Wrong Tax
3. Misclassifying Employees
4. Using Inaccurate Employee Information
5. Processing Payroll Late
6. Paying Incorrect Amounts
7. Not Making Timely 401(k) Contributions
8. Failing to Keep Proper Payroll Records
9. Not Handling Garnishments and Child Support Correctly
10. Forgetting to Send Year-end Tax Forms

1. Missing Deadlines 
   The IRS must receive payroll taxes by particular dates, which are usually due every quarter, month, or half-week. For instance, depending on your lookback period, there are typically two deposit schedules for federal payroll taxes: monthly and semi-weekly. Furthermore, if you don’t meet these dates, you may be subject to fines that reach 15% of the amount that is past due plus interest. Check with your local taxation authorityfor state payroll tax deadlines to avoid falling behind.
2. Submitting the Wrong Tax Amount
   Payroll taxes vary depending on the tax rates levied by the federal and state governments, while some, like Social Security, Medicare, and FUTA, are fixed percentages of an employee’s salary. In either case, you must accurately determine the necessary sums, deduct them from your employees’ paychecks, and make timely deposits. The Failure to Deposit Penalty of up to 15% of the due amount is applicable if your deposits are not in the correct amount, much like the fee for late deposits. Many businesses decide to outsource payroll to a third-party service to ensure accurate calculation.
3. Misclassifying Employees 
   Knowing whether a worker is an employee or an independent contractor is crucial since it determines whether tax withholding is required. Be sure to view the IRS exams because the major difference between W-2 and 1099 employees is how much control you have over them. Even if you hire someone as a 1099 independent contractor, it’s crucial to periodically review their position. When a contractor’s position develops throughout the course of their employment with your organization, their categorization may also alter. The steep financial repercussions of misclassifying employees, even unintentionally, include a $50 fine for each Form W-2 you failed to file on an employee, a penalty of up to 3% of the wages, plus up to 40% of the FICA taxes that weren’t withheld from the employee and up to 100% of the matching FICA taxes you should have paid. This makes misclassifying employees one of the top payroll mistakes to be aware of.
4. Using Inaccurate Employee Information
   While processing payroll, the IRS demands accurate employee data, so when setting up a worker, make sure you have the necessary information, such as name, address, date of birth, hourly rates, bank account, and W-4 filing data. Also, remind staff members to update you whenever their information changes. If your employees have access to self-service features through your payroll partner, they can log in to give updated information such a change of address or withholding amounts. Nevertheless, you will still need to make some of these modifications, such as adding a new pay rate.
5. Processing Payroll Late
   Employers must pay employees on time according to the Fair Labor Standards Act and several state laws. Also, being late could result in civil money fines. For instance, in California, employers are subject to a $100 daily fine for a first offense. Furthermore, failing to meet a payroll deadline can negatively affect trust, morale, and staff retention. In some circumstances, this may result in complaints that result in a pricey lawsuit or an audit of your company. By abandoning manual processes and implementing as many automated services as you can, such as time and attendance, employee engagement, and payroll, you may be able to prevent these problems.
6. Paying Incorrect Amounts
   Employers must pay workers their full earnings, as determined by the specified pay period, in conformity with both state and federal requirements. But when it comes to payroll mistakes, it’s not unusual for employees to receive an overpayment or underpayment as a result of things like withholding problems or calculations made incorrectly for overtime. State laws may have special requirements if you overpay an employee; still, you have the right to collect the excess salary. You must comply with state regulations if you underpay as well.
7. Not Making Timely 401(k) Contributions
   You must make prompt contributions if you offer a 401(k) plan. In general, deposits must be made as soon as possible after the money has been withheld from an employee’s wages, but no later than the 15th business day of the month after the withholding of the contributions, unless otherwise specified in your plan documents. If not, you run the danger of being fined by the IRS and Department of Labor. Establish a mechanism that requires elective deferrals to be deposited with or after each payroll. If any deferral deposits are late due to vacations or other disruptions, keep track of the reasons why.
8. Failing to Keep Proper Payroll Records
   Employers must keep some payroll records for at least three years under state and federal rules, as well as any documents used to calculate wages for two years. For instance, you must preserve records of an employee’s work and time schedules, as well as any additions to or deductions from wages, for two years in accordance with the FLSA. States may have even more stringent regulations; in New York, firms must maintain comprehensive payroll records for a period of six years. To ensure adherence to the recordkeeping regulations, establish policies for your business and suitable storage requirements.

How can I avoid payroll errors?

As you can see, maintaining error-free payroll may be difficult and time-consuming. But, there might be serious consequences to your company if you don’t control and prevent payroll errors. Because of this, many businesses opt to outsource payroll. In addition to having access to services like professional tax support when you work with a professional provider, your procedure will be automated, so you won’t have to worry about errors or delays.

Bottom Line

SW HR Consulting has been helping companies to build their teams and values for over 10 years.  Contact us  to find out more about our unique  hr outsourcing services  and see how our expertise can benefit you.