Regulatory agencies, like the Department of Labor, can take note of repeated offenses. This pattern can lead to audits, borrow a car: what to know further investigations and fines. States may have stricter guidelines on who may or may not be considered exempt.

It sets the foundation for success and plays a large role in preventing other payroll processing mistakes from happening. You can run into serious trouble for misclassifying a worker as an independent contractor. Many small business owners unknowingly compensate workers as if they’re contractors despite treating them like employees.

What are the top payroll mistakes to be aware of?

But these additional expenses, while burdensome, are just the tip of the iceberg. Chronically late tax payments can flag your business to tax authorities, leading to increased scrutiny and even comprehensive audits. Check your state payroll frequency laws to ensure your pay frequency is allowed by your state. You may have separate pay frequencies, depending on the work your employees do.

If you offer a 401(k) plan, you’ll need to make timely contributions. Otherwise, you risk penalties under IRS and Department of Labor rules. Failure to pay overtime correctly can lead to wage disputes and legal actions. Familiarize yourself with overtime laws where you have employees working and ensure accurate calculation and compensation for overtime hours. For example, the standard rule for overtime pay is 1.5 times an employee’s hourly rate for every hour worked beyond 40 hours a week. If your state’s overtime rules differ, you must comply with the regulations that are most beneficial to the worker.

With these and other considerations in mind, it’s essential you stay up to date on national and state-related requirements around wage deductions and payroll. Pull historical data from Wrike’s calendars to cross-check data entry. Color coding makes them easier to understand at a glance and is especially helpful for teams managing multiple types of billing structures, including milestone billing.

Furthermore, a missed payout can ruin relationships with your employees. A business operating across state lines must juggle multiple pay schedule laws. Some states require paychecks to be cut at least twice a month. Meanwhile, other locales, like Kansas, mandate payouts only once a month at the minimum.

Power your business with Square

But it’s imperative to make sure that you’re not making any of these relatively common payroll mistakes if you manually calculate payroll in-house. When you become an employer, you’re bound to make a few mistakes along the way. Some mistakes (like payroll ones) are more costly than others. Although there are varying legal time frames for states, generally, it is the law that states that payroll errors should be corrected promptly.

Kat Cox works to provide answers to the questions small business owners have about how to set up, run, or fund their businesses. Millions of companies use Square to take payments, manage staff, and conduct business in-store and online. Miscalculating or failing to pay overtime is a labor law violation. It can also cause financial problems and dissatisfaction among employees. Unfortunately, they can also impact employee trust and satisfaction.

You’ll also need to submit a copy of the forms to each locality where municipal tax was withheld during the year if you’re in a state with local income taxes. Set a reminder for yourself each year or, if you use a payroll service, they’ll handle this task for you. Payroll due dates are an important aspect to processing payroll. Employees need to submit their hours on time, payment information needs to be correct, and financial departments need to have time to run payroll every pay period. And beyond these day-to-day considerations, there are tax filing deadlines that your organization needs to follow. The good news is that you can avoid all of these issues with proper payroll management.

1. As an employer, you’re responsible for holding onto a portion of employees’ gross pay for taxes.
2. Department of Labor’s classification guidelines, IRS rules and any applicable state rules.
3. Mistakes happen in business, but mistakes in your payroll, specifically, can cause unnecessary stress for your HR and finance teams.
4. Copies of Form W-2 must be sent out to your employees and other parties (e.g., Social Security Administration and state or city) by January 31 each year.
5. But these additional expenses, while burdensome, are just the tip of the iceberg.
6. For example, let’s say you didn’t pay employees at their overtime rate when you should have.

If you’re processing your payroll manually, using payroll software can help, but you’ve still got to watch your entries. The first is to automate your payroll system through payroll software, which can streamline the process and help you make sure you’re meeting applicable payroll laws. The right payroll software can handle the time-consuming process of determining tax rates, tax withholding, onboarding new hires, and even employee time tracking. Being aware of the most common payroll mistakes is a great first step to avoiding them in your organization and maintaining a smooth payroll process. Invest now in perfecting the payroll process so your company doesn’t pay for it later. Some payroll taxes like Social Security, Medicare, and FUTA are fixed percentages of an employee’s wages while others depend on tax rates imposed by the federal and state governments.

Not maintaining proper payroll records

Payroll processing involves entering payroll data into payroll software so that employees can get paid. This procedure involves handling various tasks such as calculating wages, processing payroll taxes, and producing checks or facilitating direct deposits. As you can see, keeping your payroll error-free can be time consuming and complex.

Misclassification can have serious consequences for your payroll. The most common mistake is assuming that “salaried” employees are always “exempt” and “hourly” employees are always “nonexempt”. The FLSA sets the requirements for exemption and non-exemption based around the nature of an employee’s work and other factors. Misclassifying employees as exempt or nonexempt employees can be one major reason your overtime wages are incorrect. It’s also important to know the rules around independent contractors, which are set by the IRS and state agencies. Full-time vs. part-time employees and whether or not the employee is part of a union may mean their pay is governed by different rules as well.

Common payroll errors

Depending on where your business and employees are located, you might owe additional taxes (e.g., occupational privilege tax). Use the Department of Labor’s (DOL) six-part economic realities test to determine if a new worker is an independent contractor or an employee. We’ve eluded to this above, but clear communication is the answer to many mistakes made in the workplace. Whether people assume details incorrectly or don’t want to ask for help, clear communication can help in these circumstances. Communicate what you need from them, by when and why it’s essential. If you are looking to outsource Paychex can help you manage HR, payroll, benefits, and more from our industry leading all-in-one solution.

You need to make sure you withhold the right amount of taxes from your employees’ paychecks and understand how much you, as an employer, have to pay as well. Check out this step-by-step guide by the SBA for guidance on how to set everything https://accountingcoaching.online/ up. When I Work payroll software offers a solution to these problems by automating your payroll and compliance tasks. The platform includes all timesheet data, automates calculations, and uses that to run payroll in a single click.

At first, it seems like a simple process to track employee time. Just enter the hours they worked and turn them in at the end of the week or month and pay them accordingly. Unfortunately, the process is much more complicated than that. If you’re a small business owner, you most likely handle payroll yourself.