Paying your employees may seem like a basic and straightforward task. However, there are many common mistakes that you could be making as a business owner due to such things as staff turnover, not keeping up with local, state, and federal payroll and tax laws, and the burdens that go along with running a business. These mistakes can cost a business money and be detrimental to its reputation. The IRS penalties for non-compliance with tax laws may be steep and administrative staff may spend a lot of time trying to fix mistakes. Companies also want to avoid being known as an employer that doesn’t pay its employees on time or correctly.
- Misclassification of Workers
The federal government is cracking down on companies that classify their workers as independent contractors when they should legally be an employee. Some employers do this to avoid the added expenses of taking on full time employees. The effect of misclassifying an employee as an independent contractor is that you will need to pay retroactive payroll taxes. You could also become subject to legal action.
In order to avoid IRS and legal trouble, it is necessary to understand the rules for how to properly classify your workforce. Therefore, it is often prudent to seek advice from an experienced attorney that can help you determine the correct way to classify your workforce.
- Failure to Remit Payroll Taxes
As a business owner, you likely have to pay taxes year round. This is in stark contrast to operating as an employee or freelancing where you only pay once per year. The IRS and each state regulate tax payment schedules whose frequency will further depend on how often you pay your employees (e.g. weekly, biweekly, monthly).
- Payroll Schedule
Another common mistake is messing up the payroll schedule. This may be due in part to employees having different pay schedules or even something just as basic as getting so consumed by day to day operations that you forget to process it all together.
It goes without saying that paying your employees on time is essential, and it is therefore important to limit this risk as much as possible. A good way to make sure you pay on time all the time is to consider outsourcing your payroll duties to a payroll processing service. This will help you stay on schedule and will allow you to continue to focus on the less administrative tasks important to your business.
- Miscalculating Wages
One issue involves mistakes made when calculating gross versus net payroll for your employees because it hinges on the appropriate application of various federal and state taxes– which often are tricky to determine. This is another example that can be avoided by employing an outside payroll service. Another miscalculation issue involves overtime pay. There are guidelines that must be followed when calculating overtime pay and litigation is on the rise for such cases where employees were misclassified as “exempt” and therefore not entitled to overtime pay when in fact they should have been.
- Forgetting Checks
As a busy business owner, you may find yourself cutting employees unofficial or irregular checks such as for bonuses or advances in salary. It is not uncommon for employers to forget to record these checks and ultimately find their books way off balance and unable to figure out where they went wrong. This can lead to mistakes in tax payments and reports to the IRS. Again, seeking the advice of an experienced attorney can help to mitigate these kinds of mistakes.
At Integrated General Counsel we are experienced in guiding business owners in all aspects of the payroll process. We understand the complexities involved in running a business and can step in so that you can continue to focus on running and growing your business. Contact us today to see how we can help your business!
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