Your payroll department should consist of a team that is reliable, trustworthy, experienced and can meet deadlines. At the same time, this team of bookkeepers should have a solid business background and technology skills and a firm understanding of compliance matters.
When you cobble together all these attributes, you have a solid department that runs smoothly and efficiently. But, sometimes, cracks appear within a payroll department. And when they do, your company faces penalties that can harm the business as well as its reputation. Tax-related penalties can prove to be the biggest headache. Avoiding mistakes is essential.
Poor records, ignoring tax matters
Here are some of the more common mistakes made within payroll departments:
- Failing to make payroll taxes a priority within your company. Subscribing to this philosophy can lead to failure to meet deadlines as well as being late in making tax payments.
- Providing the wrong classification for employees. Are they full-time employees or independent contractors? Some businesses may misclassify employees in a money-saving move. Remember that if a person is an employee, the business is responsible for paying the payroll tax as well as benefits. A misclassified employee loses out on benefits and other matters, and your payroll department’s error may require you to pay additional taxes as well as wages owed.
- Having inconsistent, inaccurate or no payroll records at all. Accurate payroll records are essential for any business, and you must keep them accessible and organized. What if a wage dispute or an IRS audit surface? The IRS recommends that businesses maintain payroll records for at least four years after the taxes get paid or are due. Such records include W-2s, expense accounts and timesheets.
- Using the incorrect pay rate. Whether your business is overpaying or underpaying employees, you have a problem. With the implementation of pay cuts, make sure the employees receive their correct pay rate. This mistake always proves detrimental.
Ultimately, payroll mistakes prove frustrating for the employer as well as the employee. Payroll errors related to taxes can potentially lead to fines and other penalties from the IRS. Make sure to run a tight ship regarding payroll.