Though paying your employees may seem an easy task, common mistakes do happen, and these can bring costly consequences. With many businesses adopting payroll accounting software, you may assume that everything will be easier in just a few strokes of the keyboard.
Business owners that are doing payroll accounting can get overwhelmed with a lot of responsibilities, ensuring that every employee is paid accurately and on time. Committing payroll errors can result in penalties and noncompliance, affecting your company’s financial health.
Hiring a payroll specialist like Act Bookkeeping Group might help you from this stress. Having someone professional to assist you with payroll frees up more time so you can focus more on other important parts of your business.
Listed below are the common business payroll mistakes and how to avoid them.
1. Inaccurate Details
This is pretty straightforward but often overlooked. You must check employee details for accuracy and make sure that tax file number, payment information, gross wages, allowances, employment period, hourly rate, and tax withholding information are all set up in the payroll system correctly. Also, don’t forget to check the payment amount as slight inaccuracy in numbers can lead to paycheck errors.
2. Treating employees as contract workers
It is understandable for small business owners to hire someone as an independent contractor especially if it’s temporary work. You may outsource a task in this gig economy world and hire contractors to complete some projects. While that can save you time and money, it is very important to know the difference between an employee and independent contractors.
You should put your workers under the actual legal classification as it is required by the law. Under employee conditions, the client is responsible for paying and reporting employment taxes and other benefits. Misclassifying employees as contract workers can get you penalized.
3. Not up-to-date with Payroll Tax Changes
To avoid potential payroll-tax related issues, you or your payroll specialist should be aware of the updated payroll tax changes and requirements. Preparing and processing payroll is more than just about calculating wages but also adhering in government, state, and local laws. Did you know that over 40% of small businesses get penalized an average of $850 each year on failing to keep up with the latest payroll taxes? Making sure that all necessary data in preparing payroll are up to date and accurate to avoid headaches and unwanted costs.
4. Missing Payroll Deadlines
If you are wearing many hats as a business owner, chances are you’ll fall behind on other crucial tasks. Forgetting to process payroll or doing it late will cause a lot of issues and can affect business operations.
The worse thing is, you might spend more time correcting errors! Payroll delays negatively affect employees and this can put you in legal trouble. Rushing the payroll will not also help as it can lead to numerous inaccuracies. This is why hiring someone to do the payroll is extremely beneficial.
5. Miscalculating Overtime Wages
An employee’s overtime rate is different from his regular wage. Overtime wage laws vary in some states and cities. While this differs from other companies, the overtime wage typically consists of an additional 50% of the employee’s hourly wage. Incorrectly paying overtime rate leads to payroll mistakes, leading to penalties, interest, and back wages.
6. Too much software reliance
Even though the technology is readily available to make work faster, it doesn’t always mean that it will get the job done. The truth is, not all payroll programs are compatible with the company’s systems. For example, you have a program for recording employee’s information and files and another program to pay their salary and benefits. They must be aligned to create a seamless transaction. There are excellent programs out there like Quickbooks but you should not assume that you don’t need to enter all the necessary data and let the program do its calculations.
7. Unorganized Payroll Documents
This is very straightforward. If you are not keeping necessary employee information and records organized, there’s a tendency that it will lead to payroll mistakes. The key is keeping the files and documents in a central location for ease of access and efficient workflow.
Act Bookkeeping Group is the leading bookkeeping company here in Canberra. We are experts in different payroll systems who are on the mission to decrease costs, minimise compliance risks, and improve your organization.