The payroll process is a necessary component of any business and making sure it’s accurate is exceptionally important. Even the smallest error can have a lasting impact on your company’s bottom line when you consider penalties, fines, and even lawsuits. This can be a nuisance to mid-size businesses but devastating to a small business.
It’s Hard to Go Unnoticed
The Department of Labor (DOL) keeps a close eye on businesses to help ensure they pay their employees correctly, and the Internal Revenue Service (IRS) and state taxing authorities are always going to make sure they receive the appropriate tax payments.
12 Common Errors to Avoid
Everyone makes mistakes, and we’re hopeful they’re caught before anything bad happens. 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.
- Misclassifying employees and contractors
- Miscalculating exempt and non-exempt employees
- Miscalculating overtime
- Failing to pay minimum wage
- Improper tax calculations
- Missed deadlines
- Failing to send 1099s
- Data entry errors
- Improperly handling levies, garnishments or child support
- Not maintaining proper payroll records
- Not maintaining confidentiality
- Not taking appropriate security measures
In the gig economy, temps, freelancers, consultants and other independent contractors are commonly found in many industries. It’s essential that you accurately categorize everyone who works at your business, so you can properly report your payroll taxes to taxing authorities.
You must follow pretty strict guidelines when determining who gets overtime pay; miscalculations can hit you hard. In recent years, more and more employees are suing their employers claiming they didn’t receive overtime pay they were entitled to because they were incorrectly classified as exempt employees. It’s important to keep a close watch on this one.
If employees still use paper time cards and you manually run your company’s payroll, it’s easy to make data entry mistakes when it comes to overtime pay. Make sure to check and double check all numbers so you don’t pay someone too much or short them on time.
Federal and state laws are in strict agreement for this one. You must pay employees at least the prevailing minimum wage for the regular rates of pay.
Taxes are always changing and tough to keep track of, especially if you have locations in multiple states or jurisdictions. Monitoring changes can easily become a full-time job, but you’ve got to get it right or Uncle Sam will come knocking.
You know it’s important that you absolutely have to make payroll on scheduled paydays and make sure employees are paid on time. But you also need to mark your calendar to ensure that you report and deposit payroll taxes to federal and state agencies in a timely fashion. Making a late deposit can result in fines and interest charges.
Speaking of contractors, you have to send a Form 1099 to any independent contractor who’s paid $600 or more during the year by January 31st. Again, it’s important to mark this date on your calendar!
Mismatching Social Security numbers and employee names is such a common occurrence that the Social Security Administration even provides Social Security number verification services. Other data entry errors, such as keeping inaccurate employee hours, can cost businesses millions of dollars every year and can also result in those pesky fines and penalties. If you’re processing your payroll manually, using payroll software can help, but you’ve still got to watch your entries.
Sometimes employees owe money to other people as the result of a court order. This means whoever is managing payroll is responsible for deducting the appropriate amount and sending the payment to the appropriate recipient. If this process is mishandled, it could mean trouble for your employees.
The rules vary depending on which state you’re in or which agency is asking for them, but typically all payroll records (time sheets, cancelled checks, and Forms W-4), must be stored for anywhere from four to six years.
Payroll information should never be disclosed to anyone outside of the payroll department, your senior management teams or your payroll service. It is important that such confidentiality be maintained.
Your payroll database contains a huge amount of personal information on your employees. So just like maintaining confidentiality within your department, payroll data must be stored in a secure environment. Whether you process payroll in-house, use a payroll service or payroll system, you’ve got to make sure that access is limited, you have strong passwords, and information is stored on secure servers with encrypted data.
Paycor Can Help
At Paycor, we’ve spent decades perfecting the payroll process. Our solution enables small and medium-size businesses to quickly and easily pay employees from wherever you are, all while ensuring tax compliance. Through 30 years of user feedback and product innovations, we’ve made payroll simple, so you can get in, make edits, run payroll and get out. Discover why nearly 30,000 organization are partnered with Paycor by talking with a representative today.