Payroll is an important part of every business, which is why it is so crucial to have the necessary funds and know-how to solve payroll problems.
Unfortunately, the payroll process can be a headache for many companies, causing critical and costly problems. Check out some of these common payroll problems and related tips to help you improve the payroll process for your business.
Problem #1: Classifying Workers Incorrectly
A business may be made up of different classifications of employees, including part-time and full-time. There may also be employees who work only as needed, who stay for a temporary period of time or work as freelance employees or independent contractors.
When figuring payroll, it is important to have each employee in the correct classification in order to deduct the right amount of taxes and allocate them accordingly. For example, an independently contracted employee is not required to pay taxes and social security when the paycheck is initially issued. This is an attractive option for many employers because it can simplify the process on their end.
Unfortunately, if you misclassify a contracted employee, they may miss out on wages and compensation. Also, misclassification can result in the company paying both the employee and the employer’s share of taxes or back taxes, plus penalties and interest.
Tip: You can avoid this problem by taking a few extra minutes to make sure you are correctly identifying each employee. If you are not sure where they belong, you can find more information in Publication 15-A from the IRS.
Problem #2: Wrong Tax Categories & Rates
Tax rates can frequently change, which means the information you had when you started your company may not be current. Make sure to check all tax rates frequently and make adjustments in your payroll as needed to avoid penalties and interest.
You will also need to make sure deductions are made at the correct time. Some items are taken out before taxes, and some are taken out after taxes. For example, different types of supplemental insurance may have different deduction rules.
Tip: Make sure you are familiar with all the current and correct regulations. It is also a good idea not to rely too heavily on accounting software, but instead, periodically check that the default settings are accurate and have not changed accidentally.
Problem #3: Making Mistakes When Calculating Overtime
Full-time employees who work more than the set amount of weekly hours are entitled to receive time and a half salary for these additional hours. However, some employees may be exempt from this benefit.
Tip: To avoid penalty charges, make sure you are up-to-date on overtime rules in your city and state and that you are following them exactly.
Problem #4: Not Making Payroll On Time
Not only do late paychecks make employees angry and cause them to lose their trust in you, but the company can also be labeled noncompliant by the state.
Tip: Make sure you stick to your designated frequency of payment schedule and allow yourself adequate time to complete and distribute paychecks. If you need to, set an alert or reminder on your phone or computer.
Problem #5: Not Getting Help When You Need It
As a business owner, you need to learn how to solve payroll problems, and how to recognize when it is time to get outside assistance.
Tip: If payroll is becoming a problem due to lack of funds, consider a small business loan to keep your company fully staffed and operating effectively, so you can continue to grow and thrive.
How Sunwise Capital Can Help
Many companies have a hard time acquiring a business loan because of the extensive qualification process. Additionally, they may not know where else to turn when they don’t get the loan or rates they hoped for. As former small business owners, we understand how difficult the early stages can be, which is why we are completely focused on helping small businesses.
Sunwise Capital provides small business loans with lower qualification requirements than most banks. We want to help you get the funding you need to help your business reach its full potential. And we will work with you personally to make sure you have plenty of options to choose from and get the one that works best for you. Apply now for a small business loan and make payroll problems a thing of the past.