For many small business owners, the quieter summer months provide a wonderful opportunity to set new business goals and adjust strategies accordingly. But while you're focusing on deploying a new marketing tactic or creating a new product, you must make sure that you keep your day-to-day business operations running smoothly. No matter the season, accurate payroll should always be a priority. Here's an overview of five common payroll errors and best practice tips to help avoid them.

1. Misclassifying Your Employees

The Fair Labor Standards Act (FLSA), which was originally passed in 1938, is a key piece of federal legislation that governs wage and hour matters in the United States. This law requires employers to pay nonexempt employees overtime for hours worked over forty hours in a workweek. FLSA regulations provide exemptions for those who work in administrative, professional, executive, highly compensated, outside sales and computer professional jobs, provided they meet certain salary and/or job duties requirements, although one of the most common misconceptions is that all managers are exempt from overtime pay. In reality, a job title is not enough to make a person exempt. Rather, an organization must take into account a person's salary and duties. Given the recent focus on overtime rules, the FLSA regulations and requirements surrounding exempt employees may be subject to change in the coming years. As always, you must ensure that your company is compliant with the current regulations, as well as any new regulations established by the United States Department of Labor (DOL).

2. Not Paying the Necessary Overtime

Another misconception is that some workers are able to waive their rights to overtime. For the purposes of the FLSA, this is not the case if an employee is deemed to be nonexempt. Every worker who is categorized as nonexempt must be paid 1.5 times his or her hourly wage for all hours worked over 40 hours in a workweek, as laid out in the FLSA.

3. Failure to Compensate Nonexempt Employees For Training

The last three common payroll errors involve not paying nonexempt employees for activities outside their normal duties. Generally, under the FLSA, as the DOL outlines, attendance at lectures, meetings and training programs will not count as working time only if the following four criteria are met: it occurs outside normal working hours, it is voluntary, it is not job related and no other work is concurrently performed.

4. Not Compensating Employees for Time Spent Receiving Treatment for Work-Related Injuries

Another seemingly gray area relates to injuries sustained at work. Under the FLSA, the requirement is that employees must be compensated for all the time they spend waiting for and receiving treatment for work-related injuries, as long as that time falls within normal working hours.

5. Not Compensating Employees for Time Spent at Required Functions

The final payroll error relates to the infamous office party. Generally, under the FLSA, if a nonexempt employee is required to attend an office party, he or she must be compensated for this time, especially if the party is held during normal office hours.

Tax Implications

When it comes to accurately calculating payroll and staying on top of any and all tax implications, you may want to reach out to your legal or tax advisor who can take your specific circumstances into account. Employers should also consider reviewing the wage and hour laws in the states where they conduct business.

Every organization, no matter its size or line of business, should take a close look at its payroll. Accurately calculating your payroll can help improve employee morale and may even help improve your business if your staff members believe they are being treated fairly.

To learn more about ways to process payroll, click here for our free payroll comparison guide.

Tags: Payroll FLSA finance

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