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5 Common Payroll Mistakes That Could Get Your Business in Trouble

By / August 26, 2014 / Uncategorized No Comments

When you dream of running your own business, chances are you’re not dreaming about filing employment forms and researching regulations. But as a business owner, you’re responsible for ensuring your payroll is handled correctly.

Making payroll mistakes can result in fines and other penalties against your business — and loss your employees’ trust — so it’s important to look into your operations and make sure you’re not making any of these five common payroll mistakes.

Improperly Classifying Employees

If you’re paying people to do work for your business, you need to ensure they’re classified properly, says Russell Hollrah, an attorney who specializes in worker classification. “Independent contractors have long been a vibrant part of our economy and workforce, but recent and frequent changes in legislation mean that workers who were once classified as independent contractors may now be considered employees.”

In 2013, the IRS Inspector General issued a report calling for a crackdown on employers who were misclassifying employees, because of the costs to misclassified workers and governments. Penalties for misclassification vary by state, Hollrah says, but some are imposing fines of up to $25,000 per misclassified worker for willful misclassifications.

That level of fine can sink a business, so it’s important for managers to monitor legislation and review employment relationships periodically. The Society for Human Resource Management suggests employers review contracts and assigned duties every month or so, and go over IRS classification rules annually.

Failing to File Required Paperwork

With all that paperwork, it’s easy for business owners to lose track of what needs to be filed where. “Many small businesses fail at instituting compliance controls for maintaining collected employee forms and general payroll paperwork,” says Matthew Reischer, CEO of Legal Advice. “Employers sometimes haphazardly collect…I-9s, W-4s and corresponding state withdrawal forms without a system for enabling these records to be readily available for use and inspection.”

Whatever record-keeping system you use, it needs to meet your business needs as well as regulatory requirements, Reischer says. “This may mean scanning down back-ups of all physical forms and documents or it may mean simply purchasing organizational office supplies.”

Forgetting to Withhold Local Taxes

You’re familiar with state and federal taxes, but in some places there are municipal or county taxes you must also withhold. If you set up tax withholdings incorrectly, your employees will get penalized for not withholding enough and they will end up having to pay out of pocket, says Sarah Greene, vice president of human resources of Centerfield Media. “They get pretty angry when they have to do that.” Research the taxes you need to be withholding and ensure you’re setting them up correctly.

Miscalculating Wage Garnishments

When employees are having their wages garnished for any reasons, figuring that out can be a pain, says Greene. “Every single one we get has been different.” Different garnishments can have different calculations or interest depending on eligible compensation, bonuses, commissions and other variations. If any of your employees require wage garnishing, ensure that you’re doing it right.

Providing Incomplete Paychecks

Obviously, you’re paying your employees. But do the paychecks you provide include all the information they need to? Scott Mirsky, who practices employment law in Maryland, says failing to provide employees with a paycheck showing all deductions and how their net pay was calculated is a common error. Some accounting software may be able to help you put a pay stub together properly, but you’ll want to review it to make sure everything is correct.

We’re payroll pros, so please contact us if you’d like help avoiding these and other potentially costly payroll mistakes.

HR Solutions is a human resources outsourcing firm based in Baton Rouge, Louisiana. We eliminate human resources headaches for businesses with 10 to 1,000 employees by handling their payroll, employee benefits, regulatory compliance and other staffing needs. Contact us to learn how we can streamline your company’s human resources function to save money and reduce risk

 




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