How-To

Payroll Mistakes: What To Avoid

A system of handling payroll activities is needed for any business with employees. These activities include not just paying employees, but paying taxes on time, and filing all necessary government paperwork. The aspects of payroll vary depending on the business; some businesses may have part time employees, or part time and full time, or perhaps just contractors. Making mistakes on payroll is a big problem, so here is what to avoid:

Misclassifying Employees.

Since there are so many types of employees for a company, you need to correctly classify everyone who is working for your company to avoid any confusion. This can cause problems with temps, consultants, and independent contractors, so you need to make sure to have a good system of classification to keep track of who’s who.

Poor data entry and record keeping.

Unfortunately, mixing up names and Social Security numbers are quite common in the business world. It is so common that the Social Security Administration has established a special verification phone number for when that happens. Data entry mistakes are also quite common, and usually employers don’t go back and check what they have entered, which in itself is a big mistake. These types of mistakes cost companies millions of dollars annually and often result in penalties. Do you really want to be audited? Keep good track.

**Missing Important Deadlines. **

You must have a payroll calendar. Mark on your calendar when it is time to make the necessary reports and deposits. And make sure to take care of all payroll taxes to federal and state agencies on time. Late deposits often result in penalties.

Miscalculating Overtime.

There are several guidelines that you need to follow when determining any overtime pay. Miscalculations in this area can be costly.

Not Properly Handling Other Levies.

It is common that employees owe money elsewhere by way of a court order. That means that whoever is in charge of payroll is responsible for making sure that payment is to be sent to the appropriate recipient.

Not Saving Records.

It is important that any payroll documents, such as time sheets, W-4 forms, cancelled checks, and others are kept for about four to six years. The time necessary to keep these type of documents vary from state to state, but that is a good estimate.

Not Having Backup.

It is extremely important that the person in charge of payroll isn’t just a “one man show.” It would be in your best interest to have more than one person in the payroll department. The reason for this is that it is just better business, but it also helps to make sure that payments to the IRS and state are always sent out. People get sick and may have to be away from work for awhile…and what do you do if that sick person is the only person in charge of payroll? Sick or not, payroll duties still need to be handled. And this backup doesn’t just refer to having more people in this department, it also refers to computer systems; if the system is down for whatever reason, you need to have a manual system for taking care of the necessary payroll duties.

**Not Maintaining Confidentiality. **

Information regarding payroll should not be included in conversations anywhere else except for the payroll department. Confidentiality of employees are essential, and if they can’t trust you, you will lose your workers. Payroll needs to be handled and taken care of in a secure environment, so make sure your payroll people can respect that.

Forgetting to Send 1099s.

Again, this form needs to be sent out in a timely manner just as with the other important forms. The reason that 1099s are often forgotten about is because they refer to contract work. The law is that independent contractors who have made $600 or more in compensation during any given year are to receive a 1099 form no later than January 31st of the following year. So don’t forget that.

**Relying Too Much on Computers. **

Of course computer software programs were invented for making the process of payroll, and many other processes, easier, but too much reliability on these programs can result badly. There are several excellent programs for this function, like QuickBooks, but the program cannot make the necessary and correct calculations unless you have them. You cannot assume that the computer will know what’s what and what calculations need to be made if you don’t provide it with all of the correct and necessary information.

Now interestingly, there are services that are offered through various institutions that allow you to do your payroll online. Bank of America, for example, offers “free and easy” payroll support which would include features such as payroll calculators including federal, state, local and voluntary withholdings, electronic federal tax payments and form filing, robust reporting and tracking tools, issue and electronically file annual W-2’s, state tax payment form filing support (electronically in most states), and support for 1099 contractors. For more information, visit www.payroll.bankofamerica.com, and click on “learn more.” The screen will then prompt you to select your location, and then it will provide you with the information for your area. {::link href=”http://payroll.intuit.com/” text=”

To do it yourself visit this site.” /} for a look at payroll software offered by the makers of QuickBooks.