With federal, state and local taxes due at specific times and on particular forms, payroll can be tricky and error-prone, exposing companies to hefty liability. Here are the top payroll mistakes to be aware of – and avoid – so you can lower your risk, enhance compliance, and boost employee morale.
9 Payroll Mistakes to Avoid
Missing Deadlines: Taxes are due to the IRS by specific dates, typically on a quarterly, monthly or semi-weekly basis. And missing these deadlines could result in penalties ranging from two to 15 percent of the past due amount, plus interest.
Submitting the Wrong Tax: If you make errors in the amount of payroll tax submitted, you could be penalized by the IRS, especially if you’re a repeat offender. And fines can be up to 10 percent of total payroll.
Misclassifying Employees: It’s critical to properly determine a worker’s status – employee or independent contractor – since whether they’re subject to tax withholding depends on it. While you may have an opportunity to correct a misclassification, you’ll still be on the hook for some portion of retroactive payroll taxes. Click here for more guidance on classification.
Using Inaccurate Employee Information: The IRS requires correct employee data when payroll is processed so be sure you have the right information like name, date of birth and hourly rates when setting up a worker.
Processing Payroll Late: Missing a payroll deadline can have a serious impact on employee morale, and could prompt complaints that lead to an audit. And with missed payroll, you likely won’t pass one, resulting in fees and penalties.
Paying Incorrect Amounts: It’s not uncommon for employees to be paid the wrong amounts. That’s why it’s important to confirm the withholding and payment information is entered correctly in the system.
Not Making Timely 401(k) Contributions: If you offer an employer-sponsored 401(k) plan, be sure to make timely contributions. If not defined in your plan documents, deposits generally must be made as soon as possible after withholding the money from an employee’s wages – at the latest, the 15th business day of the month after the contributions are withheld. Otherwise, you’ll risk penalties under IRS and Department of Labor rules.
Failing to Keep Proper Payroll Records: State and federal regulations require employers to maintain certain payroll records, such as documentation about minimum wage and overtime, so be sure to pay attention to record keeping requirements. For tips on proper record keeping, download our FAQ.
Not Handling Garnishments and Child Support Correctly: When debts need to be collected from an employee’s salary, you’ll need to make sure you’re withholding correctly for child support, tax levies or other garnishments and submitting payments per the remittance instructions.
For further assistance with optimizing your payroll processes to avoid costly errors, contact Complete Payroll Solutions at 866-658-8800.