No person is beyond making mistakes. However, payroll mistakes are something that the Internal Revenue Service (IRS), your state government, and your employees are far less likely to forgive than other types of errors. Unfortunately, payroll mistakes can be all too easy to make due to continually changing federal regulations and potentially having to track regulations in several states as well. We share three common payroll mistakes below.
Failing to Withhold and Remit Payroll Taxes
As an employer, you have the legal obligation to withhold federal tax, state tax if applicable, social security, and Medicare from every employee’s paycheck. Failing to do so could subject you to severe consequences. These could include everything from fines, jail time, and even losing your business if the IRS shuts it down for non-payment of payroll taxes.
Not Paying Overtime for Hourly Employees
A non-exempt employee whom you pay on an hourly basis is eligible to receive overtime pay at the rate of 1.5 times his or her usual rate for any hours worked over 40 in one week. In some states, employers must pay overtime for hours worked over eight or twelve in a day, regardless of how many hours the employee worked in a week.
To be exempt from overtime pay, an employee must meet all three of these requirements:
- The employee must have a current classification of salaried rather than hourly.
- He or she must hold a position that requires a high level of responsibility.
- He or she must earn a minimum annual salary of $23,660.
Some employers deliberately misclassify an employee as exempt or even as an independent contractor to get out of paying overtime wages. They may also get creative in terms of what constitutes a work week. Another common scenario is allowing employees to take additional time off to make up for the extra hours worked. None of these are legal and can subject you to significant penalties. Employees denied rightful overtime pay could also sue your company, leaving you to pay back wages, interest, back taxes, and more.
Not Running Payroll on a Regular Schedule
Your employees depend on you to pay them on time. When you make this payroll mistake, they can grow angry and mistrustful since it could put them in a difficult financial position. Additionally, several states maintain laws about how often businesses must run payroll. Violating them will quickly draw unwanted attention to your company.
Get Professional Assistance to Avoid Payroll Mistakes
Inexperience with payroll or not having enough time to complete it can cause you to make careless mistakes. Additionally, many payroll mistakes are unintentional due to a misunderstanding about federal and state regulations. The best way to avoid these serious problems is to outsource your payroll to a professional organization like Nolan Accounting. This is just one of the accounting-related services we can offer your small business.