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Your Guide to Avoiding Common Payroll Mistakes

Topics: HR & Payroll Technology Solutions, Payroll Strategies

January 4, 2017 /
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In a perfect world, payroll would never be an issue. Employees would get paid properly for the time they work, benefits would always be allocated, and time off would always be put in the right bucket. Alas, we don't live in a perfect world, and mistakes do happen. Payroll mistakes, in fact, are much more common than many people might realize. According to Bloomberg, $4.5 billion in penalties were assessed by the IRS to companies in 2013 following 6.8 million tax- and payroll-related issues.

Big Mistakes on a Small Scale

Small businesses aren't immune to payroll problems simply because they have fewer employees to tend to. In fact, the opposite is often true. Small businesses typically employ a small workforce of people who wear a ton of hats to get the day-to-day job functions done. As such, there isn't a lot of room for extra fact-checking and figure-sorting. The end result for small businesses that try to take on too many tasks can often lead to costly penalties.

[Does Your Company Need to Upgrade Payroll Providers?] CLICK TO READ

According to the U.S. Small Business Administration, around 40 percent of small businesses incur IRS penalties due to payroll mistakes. The average cost is $845 annually, which can snowball quickly if proper procedures aren't put into place. The smaller the business, the more impacting these penalties can be. Unfortunately, size does matter. Larger corporations can often absorb these payroll mistakes, while small businesses typically have a hard time gaining traction when penalties are imposed.

How Can Your Company Avoid Payroll Mistakes?

Sure, mistakes are bound to happen because people are human, but there are certain buffers you can take to cushion your company against penalties and payroll mishaps. Here are a few thoughts to consider:

  • Outsource your payroll needs. If you're running a small business, you have a lot on your plate already. Dealing with hiring, firing, sales, marketing, and finance is enough to fill your day. If you're trying to add payroll compliance to the pile, you might be doing too much. At some point, outsourcing pays for itself, and if you're finding yourself in the face of fines and penalties as a result of misappropriation or failure to properly allocate funds, as innocent as the mistake may be, you could be setting your company up for costly expenses. When you outsource your payroll needs, you take much of the burden off of your own business so you can focus on doing what makes your company great.
  • Straighten Up Classifications. Are the people working for you employees or independent contractors? In the payroll and tax worlds, there's a huge difference between the two, and it's essential that your payroll people understand how to classify each worker.

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Who Gets a 1099?

If you're responsible for managing your company's payroll, you should know this off the top of your head, but don't feel bad if you don't. It's not uncommon for small business owners to be confused about 1099s, despite their significant importance to payroll and tax compliance. In short, vendors and independent contractors who were paid more than $600 for services should be issued 1099s.

As a business, your people are just as important as your bottom line. When human resources efforts fall short, the business suffers. Between hiring, managing staff, and maintaining proper payroll procedures, small businesses have a lot on their plates in terms of people management.

If you're feeling overwhelmed by the intricacies involved with payroll, it might be time to look outside of your company's box. Our team of HR specialists is here to help you gain ground and remove the worry of payroll errors. Contact us today to learn more!

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