Payroll processing is one of the most complicated, yet important business functions. Payroll mistakes can cost a business in labor hours, hefty penalties, and reputation. Payroll errors can have tremendous ripple effects throughout the organization and can seriously impact, or even disrupt, cash flow.

Here are some common payroll mistakes seen by a payroll processing company near you.

Employee Misclassification

Misclassification of employees is one of the most common and costliest payroll mistakes. Employees can be classified into three categories: full-time employees, temporary or contract employees, and part-time employees.

Independent contractors are not considered employees of an organization and are not covered by the laws of unemployment compensation, employment discrimination, payroll taxes, and minimum wages, and overtime. They are also not eligible for any employee benefits.

Almost all types of employees are eligible for benefits and protections. Misclassification can deny employee benefits and wages. Some businesses mistakenly misclassifying full-time employees as independent contractors and, as a result, they miss out on fair wages that they are entitled to.

Employee misclassification can also trigger an audit and a whole host of other issues including back taxes, penalties, and interest. To prevent future problems, avoid treating freelancers and independent contractors like employees. Consider outsourcing your payroll to a payroll processing company near you as they will ensure that your employees are classified correctly.

Missing Payroll Tax Deadlines

Small business owners have their hands full. They have limited financial resources and juggle multiple tasks. As a result, they sometimes miss important tax deadlines. There can be serious consequences for missing a payroll tax deadline. Consider investing in a payroll processing company that will help you hit each important deadline.

Failure to Maintain Complete and Accurate Records

Some common record-keeping errors made by HR managers include:

  • Failure to update employee information following a change in personal status
  • Not storing employee data for long enough
  • Data entry errors

The FLSA requires employers to maintain pay records for at least three years. Failure to maintain accurate and up-to-date records can attract lawsuits or penalties. You can be asked to provide evidence that you are paying your employees fairly.

Maintaining accurate records will simplify payroll processing and reduce human errors. You can also use records as audit evidence.

Failure to Send out Right Tax Forms

Your employees will need W-2 forms and independent contractors who earned more than $600 from you in the last financial year will need 1099s. Failure to send out the right forms to the right people in a timely manner can create confusion and spell deep trouble for your business and employees.

Payroll processing is a time-consuming task. Instead of taking the DIY route, outsource your payroll to Virtual Jeannie Bookkeeping Services. We will take care of your payroll function so your employees can stay super focused on their core capabilities. For inquiries, call (707) 664-1425.