How to Avoid the Most Common Payroll Mistakes
As a business owner, you must stay on top of your payroll obligations. Therefore, it would be best if you quickly learned how to avoid the most common payroll mistakes. Making mistakes, even minor ones can cause significant stress for you and your workers. Correcting errors can also use valuable time that you could otherwise have put into taking care of core business tasks. On top of it all, payroll errors can be costly. As HR Morning reports, one $600 mistake involving unpaid overtime cost one company more than $40,000 when it went to court.
Payroll should always be important. So, consider how you can avoid some of the most common payroll mistakes.
Keep your paperwork organized
It’s essential to keep thorough payroll records, tracking hours worked, pay rates, and payroll dates. Legal requirements aside, this information will protect your organization in case of future audits. Preparing for audits is more critical than ever before, as the Internal Revenue Service plans to increase small business audits by 50% in 2021.
There is no better time than now to learn how to use payroll services to organize employee information, calculate wages and taxes owed, and track hours. With the help of payroll software like QuickBooks, you can automate various tasks such as paying employees and filing taxes, ensuring accuracy and simplicity. If you are a professional accountant using a system like AccountantsWorld Payroll Relief be efficient and readily keep your clients and your firm in compliance.
Run regular reports
Your payroll register summarizes essential employee details, from gross salary or wages to year-to-date earnings and deductions. You should regularly run payroll reports to double-check data and reconcile information from the current pay period. Double-checking will also streamline your tax paperwork. Running a quarterly payroll register allows you to verify your quarterly payroll tax filing, for example. You can then quickly complete Form 941, providing data about Social Security and Medicare taxes withheld from the employee’s paycheck if your system doesn’t produce 941s automatically.
Figure out your tax obligations before tax season
Don’t wait until tax filing deadlines are looming to figure out your obligations. For example, let’s say you hire independent contractors. The paperwork requirements for freelancers vary from employees’, and you will need to issue your contractors 1099 forms. You don’t want to be left scrambling to gather such paperwork before tax deadlines. What’s more, 1099 designations have changed, so you must know the difference between 1099-NEC and 1099-MISC. We have a complete K2 course on Best Practices for 1099 Compliance, Including the New 1099-NEC and Updated 1099-MISC.
Thankfully, 1099 documentation can be filed electronically using an online payroll system, making it even easier to pay your contractors and meet your tax time obligations. Filing a 1099 online saves you time and headaches and can usually be completed in just three steps. Plus, online providers will quickly deliver the digital paperwork to the IRS and your contractors.
Back up payroll information
As mentioned, it’s crucial to organize and track all your payroll data. What happens if you lose your records, however? Losing documentation means months or even years of valuable documentation down the drain. You can’t run this risk. Therefore, it’s critical to back up your payroll information digitally and in hard copy. It’s also essential to adequately protect payroll information, such as Social Security numbers. The Federal Trade Commission has tips for business owners on keeping such sensitive data safe.
Stay on top of federal deposit deadlines
Missing federal deposit deadlines for payroll taxes can raise red flags with the IRS. As a small business owner, that’s the last thing you want. These deadlines are essential. Meeting these deadlines cannot be stressed enough. You should make monthly deposits on the 15th of the month (for the previous month’s payroll). There are also quarterly deadlines. The right professional payroll services can help you stay on top of these due dates.
Payroll challenges are a harsh reality of being a business owner. You must know how to avoid the most common payroll mistakes. The above guide provides tips and tools to help you overcome some of these hurdles, avoiding the most common payroll mistakes.