Misclassifying Employees – Setting up payroll correctly in the first place can save you a lot of trouble later. People who work for you can be classified as either an employee or an independent contractor. Depending on which one you have, you’ll have to fill in different forms (a W-2 for employees or a 1099 for independent contractors.) Employees may be eligible for benefits while contractors are not, plus you’ll have to withhold taxes for employees but not contractors. Setting this up properly will save you time later and reduce the risk of IRS penalties.
Not Depositing Withheld Taxes in a Timely Manner – You may have to deposit taxes bi-weekly or monthly, or once withheld taxes reach a certain amount. This may be done electronically or through a more old-fashioned method. If taxes are deposited late, your company may be charged a late penalty and interest. Accounting Today reports that the penalty can be anywhere from two to fifteen percent, depending on how late the payment is.
Leaving Payroll to the Last Minute – Payroll isn’t fun to do, plus you have many other obligations to get done. It takes a lot of time to make sure that payroll is done right, but many people rush through it to get it done on time. This can lead to mistakes. Or, if you do take your time, it could lead to payroll being late. This makes employees unhappy and, if it happens regularly, could cause good employees to leave.
Not Staying Up-to-Date on State Withholding – It can be tough enough to set up your payroll for the proper federal and state withholding, but the state may change its unemployment rate. You need to stay up-to-date to ensure you’re setting aside enough to cover it or you could face even more fines.
So how can you avoid these payroll mistakes?
Payroll is a lot to manage, especially if you or your employee tasked with doing it has other tasks to manage. By partnering with a PEO to manage your payroll, you’ll know that the payroll will be done right and on time, and that the proper amounts will be withheld and paid. Payroll companies and PEOs specialize in payroll, so they will get it done right and stay up-to-date on the latest regulations and changes. On top of getting everything done right, you will free up your own time (or that of the employee who has been doing payroll) so that you can complete all of the other things you need to get done to keep your business running.