In the world of payroll, the devil is most definitely in the details. Throughout the years, we have served companies of all sizes, in all industries and we have seen firsthand that there is one fundamental truth to handling payroll: Do It Right The First Time.
In the interest of shedding some light on the subject, here is a list of the five most common payroll management mistakes we have seen businesses make.
#5 - Employee Misclassification
Temps, freelancers, consultants, part-timers, full-timers, salaried -- chances are you have more than one type of employee working for you. It is very important that you correctly classify everyone working for your company. Employee compensation gets reported to the IRS differently depending on how each employee is classified. Employee misclassification and incorrectly reporting tax information can carry penalties, bring lawsuits and trigger audits. If you have improperly classified employees, you may be eligible to reclassify them under the Voluntary Classification Settlement Program (VCSP). Learn more about the VCSP here.
#4 - Not Sending 1099s
Any vendor or independent contractor who provides your company with more than $600 in services must receive a 1099 from you by January 31st of the following year. Neglecting to issue the 1099 as required by law could lead to steep penalties. And don't forget that there are very clear regulations to follow when determining the classification of the employee -- see number 5.
#3 - Forgetting About Banking Holidays
Mark all of the banking holidays on your calendar and be aware of how these may affect your payroll schedule. There are many holidays which will require you to process your payroll a day early!
#2 - Missing Tax Payment Deadlines
Most companies are required to deposit taxes on a monthly or semi-weekly basis, depending on the total taxes reported during a four-quarter look-back period. When taxes reach certain amounts, they must be deposited the next business day. You must stay on the schedule determined by your deposit calendar or run the risk of incurring penalties. Tax payment compliance penalties range from 2 to 15 percent, depending on how late the deposit is.
#1 - Doing Things Yourself
The most common mistake we have seen is businesses trying to do too much themselves in the interest of saving a few bucks.
All of the above, plus many other common mistakes (correctly calculating and remitting garnishments, handling employee expense reimbursements, counting hours in the correct increments, maintaining necessary paperwork and documentation, etc.) can be avoided by enlisting the services of a professional firm. The money you think you are saving might end up costing you more in the long run in the form of fines and penalties!