Did you know that 25% of American small businesses are still tracking their finances with pen and paper?
A little less than 50% of businesses don’t have an accountant or bookkeeper helping them with payroll. Without someone or something looking after your payroll, you’re bound to make payroll mistakes.
In this post, we’re going to look at some of the payroll errors that you could be making and how much they’re costing your business. Keep reading and you’ll be able to rectify some of these issues and mitigate your losses moving forward.
Misclassifying Employees
One of the biggest mistakes that small businesses make is misclassifying their employees. This can result in huge fines from the IRS that are difficult to recover from.
The most important distinction you need to make is between employees and independent contractors. An employee has their work controlled by you, the employer, and you’re thus required to withhold income, social security, and Medicare from their paycheck.
Independent contractors control how they do things and only deliver an end product to the employer. Payroll taxes aren’t withheld from independent contractors.
It’s crucial to get the correct classification, so make sure you understand the federal, state, and local laws on this matter.
Errors on W-2 Forms
There’s nothing overly complicated about filling out a W-2 form, but something as little as misplacing a decimal or misspelling an employee name can cost you thousands. If you fail to send out W-2s to your employees by the January 31 deadline, the IRS will fine you as well.
Missing Tax Deadlines
Businesses have to hit various tax deadlines throughout the year. Companies that don’t prioritize payroll often fall short of these deadlines.
For most businesses, the frequency with which you deposit taxes is in line with how frequently you pay your employees. If you pay your employees bi-weekly but submit your taxes quarterly, you could be in for big IRS fines.
Failure to Pay Taxes
Of the millions of dollars in payroll penalties that the IRS gives out every year, failure to pay taxes accounts for the most. Whether this is a genuine mistake or due to negligence doesn’t really matter. If you don’t pay the taxes that you owe, the IRS will get you in the end.
This is due to the Trust Fund Recovery Penalty, which encourages prompt payment of payroll taxes. These penalties usually amount to 100% of the missed tax payments with added interest. The longer you wait to pay the amount owed, the more it will be.
Use Payroll Services to Fix Payroll Mistakes
The best way to avoid these common payroll mistakes is to outsource your payroll to a quality payroll service. At Valor Payroll Solutions, we have over a decade of experience as payroll experts. We’ll identify the issues with your current payroll system and work to rectify them quickly and effectively.
To learn more about our payroll service and how we can help your business, don’t hesitate to contact us today.
