Payroll Mistakes You May Be Making

January 11, 2017

If you own a small business and are responsible for handling payroll, it’s important you know the ins and outs of how payroll works, and that you be careful to avoid common payroll mistakes. Making sure your employees are paid accurately and in a timely manner is essential to employee satisfaction and retention. Let’s look at three of the most common payroll mistakes small business owners make, so that you, or your payroll team, can avoid them.

Tax Mistakes

One of the biggest mistakes employers make with payroll is in regards to taxes. This should come as no surprise; taxes are complicated, and even more so when you are paying even a handful of people. Mistakes with taxes, however, can cost you in more than just employee satisfaction. Every year, small business owners are fined by the government for payroll tax mistakes. Taxes must be paid throughout the year, not in one lump sum, so many businesses are fined for late or missing payroll tax payments. While payroll taxes can be complicated and hard to navigate, it’s essential to fully understand what taxes you need to pay to avoid fines each year. Many outside payroll services can help you understand what taxes you owe, but speaking with a qualified CPA can also help put your mind at ease.

Payroll and Cash Flow

Another common mistake that smaller businesses make when it comes to payroll is the payment schedule. Legally speaking, companies must not go over the maximum amount of time between pay cycles, but they can pay as often as they want within that timeframe. Some companies choose to pay weekly, some bi-weekly, etc. When your employees are paid is only a mistake if pay schedules are on a frequency or schedule that does not work with the company’s cash flow, leaving the company without enough funds to pay it’s employees. For example, if your business’ primary income is built around a subscription service that bills on the 1st and 15th of each month, then the 1st and 15th would not be wise days for payroll, because that revenue has not been made available yet.

Employment Status

And finally, the third most common mistake employers make in regards to payroll is not classifying employees in the correct category. Contractors and employees have the right to different pay, benefits, and taxes, so it is essential to classify your workers correctly. Contractors are tempting for small businesses especially, because they may not be necessary long term, but be careful to understand the ins and outs of contracted employees vs. regular employees to avoid fines and legal trouble.

Payroll is an integral part of your business; without a well functioning payroll system, your employee satisfaction will drop. Employees are the heart of any business, so making sure you are paying them correctly by avoiding these top mistakes is essential to the success of your small business. Many payroll services can help you navigate the ins and outs of payroll, but if you’d like a second opinion, or you are trying to handle payroll on your own, give us a call at Relate CPA today!