Top 5 most common payroll mistakes
Payroll is a complex process that is subject to an ever-changing litany of regulations. When companies choose to handle payroll manually, mistakes are inevitable —below are the top 5 common manual payroll mistakes.
Classifying an employee as an independent contractor or denying overtime to non-exempt salaried staff are examples of potential violations of the Fair Labor Standards Act (FLSA). And the penalties can be steep. To help protect your business, take a moment to familiarize yourself with the U.S. Department of Labor’s classification guidelines, IRS rules and any applicable state rules.
Sloppy or Incomplete Records
The FLSA requires employers to keep three years’ worth of pay records, including hours worked, payment rates and the date of every payroll. Many states impose their own record-keeping requirements on employers that may extend beyond three years. Missing records could mean big headaches down the road.
Missing Federal Deposit Deadlines
You must deposit your federal taxes on specific dates, but those dates are partly determined by the total taxes you report on Form 941. File late and you can end up with hefty fees on certain payments.
Failing to Report All Taxable Forms of Compensation
Most fringe benefits like stock options, achievement travel and employee discounts are subject to federal income and employment tax withholding. These forms of compensation must be reported to the IRS, or you could face significant penalties.
There are different rules for different kinds of employee garnishments (fines, taxes, child support, etc.). Failure to comply could result in fines, and employees may struggle to retrieve payments that were processed in error.