Every business should have a system in place for processing its payroll. And as a company exceeds 10 employees, it gets increasingly complicated.
To help you create a better payroll process for payday, we have listed below the top ten payroll processing mistakes many companies make (possibly even yours).
There are 10 common mistakes that companies make all the time when processing payroll. Before we dive into the list, it is important to remember that modern payroll software can help prevent such mistakes, as well as provide check systems.
Many companies also choose to employ payroll services to avoid mistakes. Fewer mistakes is one of the many benefits of outsourcing payroll.
Data entry mistakes can cost your company as the government will penalize you for them. The most frequent data entry error involves mismatching employees' names and social security numbers.
You must follow specific legal guidelines when determining overtime compensation. If your 'exempt' employees are misclassified, this could result in penalties.
Are you misclassifying workers? Full-time workers, part-time workers, independent contractors, temps, and consultants must be properly categorized to ensure proper tax reporting.
Payroll information is legally confidential. Only senior managers and the payroll department should have access to that information.
If an independent contractor makes at least $600 from you in the fiscal year, you must send a 1099 Misc. by January 31st of the following year. Even some large organizations fail to send these out on time.
If employees are court-ordered to pay levies, child support, or wage garnishments, your company is required to send a portion of his or her check to the appropriate party. Failure to do so could lead to legal trouble.
The state, IRS, and your staff still require their monies, even if your payroll department employees are sick. Do not rely on just one person or computer system to understand the functions of the payroll department.
If you make late deposits, your company could incur larger interest charges and fines. To avoid this, you should make sure you keep (and reference daily) a payroll calendar. Report everything to the appropriate government agencies in a timely fashion.
While there are several useful software programs that will help you process payroll, you must still double-check all results. Additionally, if you provide incorrect information, your software program will not give you accurate results.
You must save all canceled checks, W-4 forms, timesheets, and other records. Most states require that you hold them for 4-6 years.
Common payroll processing errors are frequent. Failure to process payroll accurately or on time can lead to government penalties, fees, and irate employees. To avoid these common pitfalls, stay on top of things, and always have a back-up plan.
It may also be worth reaching out to a payroll service company, to see how they can help. To learn more about our payroll solutions, contact us today.