How to Handle These 3 Common Payroll Problems
When it comes to dealing with your employees, the payroll is one area you cannot afford to get wrong. According to the IRS, 33 percent of businesses make errors when it comes to payroll. These typically are simple mistakes like mis-classifying workers or not paying over the right amount of state and federal taxes.
Although these are small errors, they are mistakes that can cost you a lot in terms of penalties. It is not only IRS penalties that you need to worry about, though. Payroll errors can lead to lawsuits or labor court actions, and this can prove extremely costly for your business. In order to avoid these penalties, educate yourself on these three common errors:
Deal With Terminations Quickly
Situations where employees have been dismissed or have resigned can be unpleasant. But, beyond being uncomfortable, it is legally important to make sure that final payments are made without delay in order to comply with labor laws and avoid the risk of getting sued.
When this occurs, you need to be able to log into the payroll system and quickly process the payment. With online accounting software like Sage One, all of your records are available at a moment’s notice from anywhere. The HR management system helps you check pertinent details such as hours worked and leave owed. Then, all you have to do is to punch in the payment amount and pay it over. This way, you can take care of the final payment before the employee even clears out his or her desk.
Your employees usually fall into one of two broad categories: independent contractors and in-house employees. Getting the distinction right is extremely important because the salary you pay them is reported differently to the IRS. Mistakes here can lead to big penalties and unexpected expenses.
One of the greatest differences between the two types is benefits, such as medical insurance. This can have a big bearing on the person’s status and the taxes that need to be withheld. Using payroll software can ensure that all the calculations are correctly done.
If you mis-classify a worker with the IRS, rectify the situation as soon as possible to avoid strict penalties. This will cost about 10 percent of whatever employment tax liability should have been paid in the last tax year, claims Accounting Today.
Paying Over Withheld Amounts on Time
In cases where you are required to withhold taxes from your employees, you can face several problems if you do not pay them to the correct authorities in a timely fashion. Penalties can be levied against your business and you can be charged interest as well.
Compliance can be confusing at first because there are various state and government regulations to consider. Luckily, automating the process with accounting software can help your business comply with all regulations without significantly adding to your workload. The system simply calculates the amount owed and then automatically sends the necessary returns and payments.
Common payroll mistakes cost the average company around $845 a year in IRS penalties, according to SurePayroll. Although this may not sound like a lot, it is indicative of a widespread problem. Non-compliance can lead to expensive lawsuits, penalties and, in some cases, even the closure of the business. Isn’t it much better to avoid becoming a statistic?
While these may sound like simple mistakes, these small errors can add up quickly. Avoid hefty penalties by keeping these common errors in mind.
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