When you started your business, one of the highest priority items on your to-do list was probably payroll. After all, you had employees to pay, and you knew you had to pay them. So, as long as you had the money, you were good to go! However, at that time, you may not have been aware of many of the most common payroll mistakes that most businesses make.
I have seen so many companies make payroll mistakes over the years, and I thought it would be best to share the most common ones with you, so you can avoid making those mistakes in the future. Yes, you may have been making these payroll mistakes up until now, but at least you can correct them and no longer have any concerns from now on!
5 Common Payroll Mistakes Most Businesses Make and How to Make Sure You Don’t
1. Paying Employees vs Contractors
There are very strict guidelines and policies in place when it comes to paying employees vs contractors. You must pay employment taxes for any employees you have, while a contractor pays their own taxes on the money they make. This is why there are two different forms filled out, dependent on whether you have a W-2 employee or a 1099 contractor.
It is very important that you classify your employees and contractors appropriately, because you can be held liable for any employment taxes you should be paying out.
2. New Hire Reports
Any time you hire a new employee, you must file a new hire report with your state. This form is very easy to overlook, especially if you are not in the habit of hiring new employees frequently. I recommend checking with your payroll company to see if they file this form for you or if it is your responsibility. This will prevent any confusion each time you do need to file a new hire report.
If filing a new hire report is your responsibility, I recommend you add it to your checklist of things to do every time you hire an employee. This will ensure it gets sent to your state in a timely manner and you don’t forget to do it.
3. Worker’s Compensation
Worker’s compensation is a must when you have employees. It is best to check out different worker’s compensation policies before signing up for one, so you know all of your employees are covered. This is especially true if you have employees working from their home at the moment. Some policies will only cover work-at-home employees if they are specifically named within the policy.
4. Business or Personal Payroll Expenses
As a business owner, you don’t have a lot of free time to get everything done. Therefore, you may rely on your admin to run all types of errands for you. While this is excellent news for you, it can be bad news for your payroll.
All of those hours your admin spends picking up dry cleaning, grabbing a few groceries, and even picking up a prescription are not considered business expenses. That means you must pay your admin for their time doing these types of errands from your personal expenses. If you choose to add this time to your business payroll, you could run into a few problems with the IRS.
5. Bonuses
It is amazing that you can give your employees bonuses on occasion. But it is necessary to make sure these bonuses go through payroll, so the appropriate taxes and deductions can be made. If you fail to give out bonuses through payroll, you may have issues at year-end, because you did not pay out enough in employment taxes.
These are the five most common payroll mistakes that many businesses make. It is best to avoid these payroll mistakes, because it will make it much easier to balance your books at the end of the year. Plus, avoiding these payroll mistakes will lead to fewer questions from the IRS.
If you have concerns about your payroll, or know you have been making these mistakes, contact me today. I can help you sort things out and make sure you no longer make these payroll mistakes in the future.