Companies face a mountain of obstacles throughout the course of their business. For many organizations, payroll seems to be especially challenging. The practice requires knowledge and research into current and constantly changing government guidelines and regulations. Payroll can be an overwhelming process, particularly when the people completing the procedure don’t have the necessary expertise. Errors are common and expected. Let’s take a look at some of the top payroll tax mistakes among organizations and how company leaders can avoid them:
Misclassification of workers
Organizations that identify all of their workers as regular employees could have a serious payroll situation on their hands. People fall into two categories when it comes to their position within a company: employee or independent contractor. There are many differences between the two, the largest being independent contractors are not obligated to receive the health benefits and same rate of pay as regular workers.
Some of the elements that differentiate an independent contractor are their employment of their own workers, the ability to have more than one client, the power to set their own hours and complete tasks in their own way, and many others, according to the Small Business Administration. In addition, employees and independent contractors receive separate tax documentation. Employees should get a W-2, while independent contractors are given Form 1099. Failure to provide these forms or misclassification of workers overall could lead to expensive penalties for businesses.
“Poor record-keeping could have serious repercussions for companies.”
Inaccurate employee information
Workers’ addresses, phone numbers and other data are always subject to change. While these simple alterations may not seem like a big deal, having incorrect information in their payroll system could cause problems for businesses, according to All Business. It’s important for these materials to always be current in a company’s system to ensure each employee is paid accurately. One small error could cause organizations to redo their payroll procedure.
Payroll teams should develop a process for updating employee information and make workers aware of how crucial this data is to their compensation. With this system in place, businesses can avoid problems that will waste time and money.
Handling payroll in-house
Company leaders completing the payroll process would love to believe they have all the knowledge necessary to finish the procedure accurately and in a timely manner. However, this is often not the case. Tax regulations and requirements can change between payroll periods, which obligates teams to spend valuable time learning how these alterations affect their procedures. Important information may fall through the cracks, resulting in costly fines due to late or incorrect payroll filings.
While handling payroll in-house may seem like the cost-efficient thing to do, businesses can actually save money in the long run by outsourcing this practice. Working with a third-party payroll tax provider will ensure all documents meet local, state and federal criteria and provide organizations with a group of professionals with limitless expertise in the matter.
Payroll is a critical responsibility for companies, no matter what their size. It’s easy to make errors during this practice, as regulations and employee information always have the ability to change with a moment’s notice. Understanding some of the most common mistakes can help organizations avoid falling into similar traps. Payroll teams should make sure they’re aware of employee classifications, a process for updating worker information and the benefits of outsourcing this procedure.