5 Common Payroll Mistakes Business Owners Make
Statistics reveal that nearly 40 percent of small businesses experience an average of $845 a year in IRS penalties due to preventable payroll processing or tax management mistakes. Not surprisingly, many of those errors result from small mishaps and minor mistakes that add up to very expensive issues.
Here are some of the most frequent mistakes small business owners make when taking care of their company’s payroll.
Submitting Late or Inaccurate Deposits
A missed deadline could make the difference between hefty IRS fees and getting away scot-free. Sure, life gets in the way, but a moment’s disorganization could reap a $1,000 fine (not to mention state and local authority fines and penalties). To ensure utmost compliance and accuracy, develop a system that ensures you meet the deadline early every time to account for payroll mistakes or human error if (or realistically, when) they happen.
Hiring a secondary consultant or utilizing payroll outsourcing is another way to ensure you never miss another deadline. The amount of money you save will offset cost of the outsourcing service while protecting your credit and reputation. The service can also cross examine the accuracy of your records, eliminating loose ends or ambiguous information.
Read our Payroll FAQs to Avoid More Mistakes
Incorrect Set Up of Payroll
Employee classification plays a huge role in determining how you process your payroll. Are they full employees or independent contractors? Depending on whether or not they are receiving benefits, they could qualify as one or the other—and the IRS will tax your business accordingly. Failure to properly classify your staff will result in an inaccurate payroll figure, followed very closely by an audit.
Cleaning up your payroll is as simple as installing an electronic timekeeping service and acquiring a second opinion as to the classification of your employees based on their benefits, salaries, and overall payroll profiles. Depending on their status, they will need either a Form W-2 or a Form 1099. Payroll outsourcing will provide assurance you are selecting the correct form and classification.
Form 1099 Confusion
If you hire an independent contractor for $600 or more a year, you are required to provide the IRS with a 1099-MISC by January 31st of the subsequent year. This line can become blurry as contracts come and go; generally, however, meticulous timekeeping and attention to detail will negate this issue. It is also worth noting that Form 1099s are less obnoxious than their W-2 siblings, so keeping contractors as they are is a plus for simplicity’s sake.
Failure to comply with the above can result in an audit, so do yourself a favor and keep accurate books. If you have trouble getting organized, consider contacting Abacus Payroll, Inc. for a quote.
Not Including Market Value of Gift Cards, Prizes and Awards in Employees’ Income
Though they carry a different type of value than cash, gift cards and awards are still taxable fringe benefits—and, as such, they must be reported as part of your employees’ income. Unless these gifts come straight out of your pocket, consider them a fair source of income in your IRS report.
Excluding Travel and Commuting Expense Reimbursements from Employees’ Income
As a general rule, travel and commuting reimbursement does not count as taxable income. That being said, long-term commuting or refusal to relocate in order to diminish the distance does not qualify an employee for the aforementioned exemptions. If the assignment or job last longer than a year, your need to factor reimbursement into the employee’s taxable income.
Keep in mind that, if you decide to outsource, you are still responsible for ensuring the payment of payroll taxes.
Take Payroll Mistakes Off the Table – Get a Quote Now
Payroll mistakes no more: Abacus Payroll has multiple packages and payroll options to ensure a painless outsourcing experience for small businesses of all scopes and sizes. For a no-obligation quote, call 856-667-6225 today or fill out our Fast Payroll Quote form.