Payroll is an essential part of every business, which is why it is so crucial to have the necessary funds and know-how to solve payroll problems. Almost every company will make a payroll mistake due to human error when running payroll. It’s important to ask how do you avoid payroll errors? If you can’t afford to establish payroll departments or perhaps investing in payroll software, you might consider a payroll service provider.
Unfortunately, the payroll process can be a headache for many companies, causing critical and costly problems even if you only pay minimum wage. From regulatory changes to labor laws, it’s hard to keep up with all the local, state, and federal laws. We want to know what challenges payroll professionals encounter during the payroll process. Check out some of these common payroll mistakes and related tips to help you improve the payroll process for your business. Here are the top 5 common payroll issues.
Problem #1: Classifying Workers Incorrectly
Every company must be careful about misclassified employees. A business may be made up of different classifications of employees, including part-time and full-time. There may also be employees who work as needed; there are exempt employees, employees who stay for a temporary period of time, or work as freelance employees or independent contractors.
When figuring payroll, it is essential to have employee classifications to deduct the right amount of taxes and allocate them accordingly. For example, the nonexempt employee is different than the independently contracted employee who is not required to pay taxes and social security when the paycheck is initially issued. This option 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. Especially when it comes to overtime pay. 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 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. You need to stay current with tax filings, including income tax, employment tax, and any payroll taxes.
Problem #3: Making Mistakes When Calculating Overtime
Time tracking for each pay period is crucial when keeping track of overtime hours and paying overtime. Full-time employees who work more than the set number of weekly hours are entitled to overtime wages and receive time and a half salary for these additional hours. Miscalculating overtime can be a challenge without proper record keeping. These payroll issues that can be avoided sometimes with just an old-fashioned time clock and timecard. 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 precisely. Also, invest in time recording or tracking systems. Tracking employees’ hours and their time and attendance can be automated with little expense.
Problem #4: Not Making Payroll On Time
Many workers ask themselves if it is illegal for your employer to pay you late? 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. Paying your employees on time all the time leads to high employee satisfaction.
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. Moving your payroll system to a payroll company and direct deposit can be a time and money savings over manual payroll.
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
Payroll and cash flow often go hand-in-hand. Even the best-laid business plan breaks down when missed deadlines don’t keep pace with processing payroll. If you don’t pay employees, you probably won’t have a business the next day. When it comes to payroll, Sunwise Capital stands ready to help bridge the gap. 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 a bank loan or low rates. As former small business owners, we understand how difficult the early stages can be, which is why we are focusing 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 turn payroll problems into a thing of the past. To speak to a knowledgeable small business loan expert, call 888.456.9223.