Common and Costly Payroll Management Mistakes to Avoid For Small Business

About 6 million small businesses in the United States have at least one full-time employee?

If your business is among these, congratulations! It’s one thing to start a business, and it’s quite another to create an employment opportunity that could change the life of another person and possibly that of their families.

However, with hiring employees comes certain challenges: For instance, your business’ overhead will increase. You’ll now have a responsibility to pay another person their wages, on time.

Payroll management

Several small businesses often make payroll management mistakes that hurt their organizations. To help prevent your business from falling into the same trap, we are sharing a couple of common mistakes you need to avoid.

Read on!

Employee Misclassification

There are five main types of workers your business can hire:

  • Permanent/fixed-term employees
  • Casual employees
  • Contractors and subcontractors
  • Apprentices and trainees
  • Employment agency staff.

The type of worker your hire has a direct impact on how you handle your payroll. If you have a permanent employee, for instance, you have a legal responsibility to withhold and submit their taxes to the various levels of government. In the case of an independent contractor, you have no such obligation.

If you misclassify a permanent employee as a contractor, it means you won’t be withholding their taxes while you ought to. There are penalties for this.

This is an easy problem to avoid. You can hire an HR specialist to handle your recruitment. You can count on them to classify your workers properly.

Failing to Keep Payroll Records

Did you know your business should keep payroll records for at least three years? This is a requirement and the Fair Labor Standards Act.

Some small businesses don’t take this requirement seriously and, as such, fail to implement a proper records management system. In case of an audit, perhaps the IRS thinks you haven’t been withholding taxes properly, you’ll need to provide your payroll records to prove that you aren’t on the wrong. Without the records, though, you’ll only be shooting yourself in the arm.

With payroll technology, it’s easier than ever to maintain your payroll records. Some software, for instance, will allow you to create stubs for your employees, which you can then store electronically. Read about it here.

Finance team using payroll software

Handling Payroll on Your Own

On the surface, payroll doesn’t seem like a labor-intensive function. Unfortunately, it is.

Payroll management is not just about writing checks to your employees on payday. Every workday, there are payroll processes that must go on. For instance, clocking your employee is a daily task.

There’s nothing wrong with handling payroll on your own if you’re up to the task and your business has few employees, but as your team grows, it’s advisable to build an in-house payroll department or outsource the function to a third pay. On your own, you’re more likely to make mistakes that can cost your business.

Avoid These Common Payroll Management Mistakes

Payroll management is an incredibly important task in any business. Paying your employees is a legal obligation. If you make mistakes while at it, you could land your business in trouble.

Luckily, you now know the common payroll mistakes and what you can do to avoid them.

Keep reading our blog for more business tips.