Payroll errors can lead to a lot of extra headaches for your business come tax time. Make sure you avoid these 3 most common payroll errors!
About 82 million Americans experience payroll errors at some point in their career. These errors are not just annoying; they can cost your company a lot of money. Making payroll mistakes is about more than potentially upsetting your employees.
Your company can get into trouble with the IRS. Mistakes in payroll can result in both your company and your employees not paying the right amount in taxes.
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This guide will point out three common mistakes that you should avoid when preparing your employee’s pay stubs.
1. Misclassifying Employees
There are certain protections and benefits afforded to certain classifications of employees. Other classifications aren’t afforded those same protections.
You need to know how to properly classify employees as an employee or independent contractor. Then you need to know whether the employee is exempt or nonexempt.
If you misclassify your employees, then you deny people important wages and benefits. This could also mean that the government doesn’t get paid the correct taxes.
If these pay stub errors get neglected for too long, then they develop into expensive errors. You may also need to pay penalties and fines. Plus, you’ll need to pay back past owed benefits and wages.
2. Miscalculating Pay
There are several different types of pay that employees will earn. Payroll admins need to know how to calculate each type of pay to ensure employees receive the correct pay.
- Hourly wages
- Sick time
Salaries are typically a flat rate that is calculated based on a yearly agreed upon payment amount. Hourly wages are based on a flat rate that gets paid per each hour the employee works. Overtime is typically 1.5 times what the employee’s hourly rate is and paid for each hour worked over 40 hours.
Also Read: Top Four Benefits of Payroll Software
This presents an additional dilemma of accurately tracking time. You need to know exactly how many hours your employees work to ensure you pay them the right rate for each of the hours worked and avoid the most common pay stub errors.
A pay stub generator error-free allows you to simply enter the hours and let the generator calculate the appropriate pay and taxes.
3. Neglecting to Send Out Tax Forms
Springtime can be hectic for payroll professionals. Not only do they have to manage all of their regular payroll duties, but they also have to manage tax form preparation. Current employees need their W-2 forms, and independent contractors who earned more than $600 need their 1099s.
There are deadlines for when you have to distribute these forms. Failure to meet these deadlines will not only incur the ire of your employees, but it can also get your company in trouble with the IRS.
Avoid Making Common Payroll Errors
By keeping these three common payroll errors in mind, you can avoid making them. This will ensure that your company runs smoothly, complies with applicable laws, and avoids large fines.
Also Read: What is SIP and how to use SIP calculator
Working with a professional payroll company or pay stub generator can help you avoid errors on your employee’s paystubs. It can also serve as a safety net to catch calculation mistakes.
Browse our other business and entrepreneur articles for more helpful advice on how to run your business.