There are many opportunities to make costly and painful mistakes when it comes to payroll, not least due to the complex tax regulations at state, federal and local level. While these may be understandable, however, they are certainly not desirable, and can lead to penalties from the IRS, along with damage to a company’s reputation.
By engaging with a professional outsourced payroll provider, on the other hand, you can make light work of payroll and stay on the right side of both the IRS, and your employees. If you don’t already outsource your payroll requirements, perhaps knowing that you might make any one of the following 7 mistakes, may convince you that it’s the right path to take:
- Tax errors
The IRS state that as many as 40% of all U.S. businesses face fines annually for payroll tax-related issues, including missed or late payments. Small businesses often struggle to file their payroll taxes correctly, and with so many different types of state, federal and local taxes, it’s easy to see why.
- Incorrect setup of payroll
Many mistakes can arise from payroll not being set up properly, and new businesses must make sure that they can accurately attend to reimbursements, incorporate taxes and employee classifications. Failure to set up payroll correctly from the outset, will quickly lead to errors, followed by costly penalties.
- Errors involving employee information
When employee information is inaccurate or outdated, it can lead to big problems and even fines. The simple error of misspelling a title or name, as well as failing to maintain up-to-date records such as changes of address or marital status for example, can trigger any number of payroll headaches and fines.
- Misclassifying employees
While this mistake is a common one typically made by employers with independent contractors, doing so often results in big penalties from both federal and state governments, that companies can ill afford. Not only that, but it can lead to a loss of time and even cause damage to a company’s reputation.
- Tax errors related to unemployment
Just as with payroll taxes, unemployment taxes must be paid accurately and on time, and filed every single pay day. Businesses that operate in multiple locations may find that different rules and regulations apply, and while adhering to them is essential in order to avoid fines and penalties, it’s not always easy to do without professional intervention, such as from a payroll services provider.
- Errors when calculating net vs gross
Calculating the net or gross payroll has always been problematic for small and medium businesses, and this is mainly due to payroll taxes and the problems that invariably arise with them. Errors can quickly creep in thanks to the CTC (cost to the company) being higher than the salary offered, and can just as quickly end up with a penalty from the IRS.
- Not understanding payroll rules and regulations
This common and weighty problem is the root cause of almost all the problems listed above, and can really set a company back. Payroll rules and regulations are plenty and complex, and only by working with a professional payroll provider, can the majority of businesses master them and stay clear of penalties from the IRS, not to mention avoid disgruntled employees!
Outsourcing your payroll requirements to a company that provides payroll, bookkeeping and accounting assistance is the best way to ensure that you avoid all of the mistakes above, and keep your employees paid properly, and on time.