25 Most Common Payroll Mistakes to Avoid: Small Business Tips

Most Common Payroll Mistakes

to Avoid

SMALL BUSINESS TIPS

1 Payroll is one of the most important functions of running a business.

In today’s world, employers must be well-versed in labor law, tax

law, benefit guidelines, compliance procedures, and other

payroll-related regulations.

2 Without the proper tools, resources, and systems in place an employer may

encounter diff icult situations that could lead to hefty penalty fees or legal action, or both.

In the end, employers must avoid making

as many mistakes as possible by creating suff icient policies and

procedures.

Here are 25 most common payroll mistakes to avoid.

(in no specif ic order)

3

Using inaccurate employee Social Security numbers by not validating them with the Social Security

Administration (through E-Verify) after collecting new hire paperwork.

4 Mistake #1

Using incorrect tax rates when calculating employment tax, unemployment tax, and workers’ compensation.

5 Mistake #2

Misclassifying employees as Independent

Contractors.

6 Mistake #3

Misclassifying employees as exempt workers vs. nonexempt workers,

creating issues with minimum wage and overtime requirements.

7 Mistake #4

Forgetting or neglecting to report newly hired employees.

8 Mistake #5

Forgetting or neglecting to make timely deposits for employment taxes.

9 Mistake #6

Forgetting or neglecting to f ile payroll tax returns,

or f iling inaccurate returns.

10 Mistake #7

Forgetting or neglecting to pay FUTA (Federal Unemployment Tax) and/ or

SUTA (State Unemployment Tax).

11 Mistake #8

Forgetting or neglecting to pay workers’ compensation.

12 Mistake #9

Neglecting to stay current with new tax laws and rates.

13 Mistake #10

Neglecting to keep adequate records of disbursed paychecks and direct deposit confirmations.

14 Mistake #11

Neglecting to run and maintain a consistent

payroll schedule.

15 Mistake #12

Neglecting to subject vendor payments (for

Independent Contractors) to backup withholding

requirements when necessary.

16 Mistake #13

Neglecting to issue W-2 forms and 1099-Misc forms

on time or at all.

17 Mistake #14

Improperly deducting benefits from employee wages.

18 Mistake #15

Forgetting or neglecting to withhold garnishments or submitting payments.

19 Mistake #16

Neglecting to track employee hours worked.

20 Mistake #17

Neglecting to audit payroll records on a regular basis.

21 Mistake #18

Neglecting to secure and protect employee information.

22 Mistake #19

Neglecting to have employees complete Form W-4, Form I-9, benefit enrollment forms, and other documents to process

payroll correctly.

23 Mistake #20

Poor f iling of employee records or not having a filing system at all.

24 Mistake #21

25 Mistake #22

Neglecting to retain employee records, payroll records, and payroll tax returns as suggested by federal

and state law.

26 Mistake #23

Neglecting to assign or hire a competent and

trustworthy payroll processor to handle

payroll duties.

27 Mistake #24

Neglecting to have a payroll policy and procedures manual.

28 Mistake #25

Not taken into serious consideration that your

business could undergo an IRS audit at any time.

Avoid making unnecessary mistakes and process payroll with confidence with the

help of these quick and dirty guides!

29

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