3 Common Payroll Management Mistakes and Their Solutions

Payroll Management Mistakes and Their Solutions

3 Common Payroll Management Mistakes and Their Solutions

Payroll management and generation might appear the simplest of task to some, but it isn’t. Period.

Small businesses are prone to making payroll management mistakes. The consequences of these mistakes can be time consuming and resource demanding to avert. Not to mention, they can be costly as well.

It is estimated that around 1 in 3 companies in the U. S is fined every year by the IRS for performing payroll incorrectly.

What are some of the common mistakes that small businesses make when handling payroll—and how can these mistakes be avoided?

Mistake #1: Not classifying workers properly

Many small businesses are guilty of improperly classifying their workers when managing payroll. Employees get wrongly classified as independent contractors and contractors end up getting classified as employees.

You don’t have to pay a contractor for overtime and neither do they have any minimum wage restrictions. Also, you cannot withhold employment taxes from the wages of a contractor, but for your employees you can.

Misclassifying your workers can bring you in direct violation of these rules.

To avoid this mistake, it’s important that you know how to classify your workers correctly. Whether a worker is a contractor or an employee-you should be very clear about it.

For your guidance, you can use the six part economic realities test, as recommended by the U.S Department of Labor.

If you’re still unsure how to classify a worker, you can submit Form SS-8 to avoid issues related to misclassification of payrolls. When you submit this form, you seek the help of IRS to determine the worker’s status.

Mistake #2: Improper classification of employees

Employees can be classified as exempt or non-exempt. The main difference between the two is, non-exempt employees are entitled to receive overtime wages if they work for more than 40 hours in a week, while exempt employees are not paid for overtime.

Misclassifying an employee as exempt mean they can miss out on just wages.

To determine an employee’s correct status, review these guidelines as contained in Fair Labor Standards Act.

You must remember though that some states maintain stringent laws of their own about who can be classified as exempted employee and who qualifies as a non-exempted employee. So make sure you check with your state’s laws as well.

Mistake #3: Running the payroll late

It’s important that you pay your workers on time. They are relying on receiving their regular wages to pay their monthly bills and meet other expenses. Failure to pay them on time, can cost you their trust and they are likely to become frustrated.  Moreover, not following a consistent pay frequency can make you non-complaint with your state’s pay frequency requirements.

To avoid running your payroll late, pick a pay frequency and stick to it. Start processing your payroll in advance as the pay date approaches. Set a reminder if it helps.

Want to make your payroll processing and management hassle and error free?

We can help you. TaxBusters provide payroll services to small and medium sized business in El Paso/Las Cruces region, financial services in Southwest and has been serving the business community for last 30 years. Get in touch with us to get the  today.