Payroll is hard enough in a company of one. Anyone who has grown a business from their individual desk to multiple employees knows managing timesheets, invoicing, and worst of all, taxes, is not an easy burden to bear. The larger your business grows, the bigger that burden becomes—and so too does the room for error.
You can forgive yourself for messing up your own check, but as you add employees to your company, payroll problems aren’t so easily forgotten: your team relies on accurate and timely paychecks in order to live well; your business can only succeed if your budget is correctly balanced; and the IRS isn’t that understanding of excuses either like, “I’m new to this.”
Payroll mistakes can have very real and costly consequences. Below are five common payroll errors that, with the right knowledge, tools, and preparation, your small to medium-sized business can avoid. Keep in mind, avoiding mistakes will be significantly easier if you have payroll software in place as central system of record and reporting.
- Employee Misclassification
Exempt or non-exempt? Contractor or part-time employee? The rules governing how employees are classified are created to protect individuals from being taken advantage of by their employers. But most employee misclassification mistakes are a result of simply not understanding where the lines are drawn and how the labels are determined. The IRS is increasingly auditing for these classifications as mistakes can result in underpaid payroll taxes. In today’s gig economy, it’s smart to deeply familiarize yourself with the rules or consult an HR or tax expert.
- A Paper-Based System
The homegrown system for tracking hours and invoices might feel comfortable because you’ve had it in place so long, but paper based systems are a danger zone. Paper gets misplaced, thrown away, or shuffled around. It’s not only notoriously inaccurate, it’s also time consuming to manual move data from paper to an online system. A computer based accounting system will prevent costly mistakes and save valuable time during tax season.
- Payroll Taxes
The list of Federal tax rules is more 75 pages long and doesn’t even begin to touch on the rules for state and local taxes. It’s enough to send anyone’s head spinning. Payroll taxes are nothing to play with. Errors always come back around to haunt you are are quite costly. Late payments, missed payments, or a simply not knowing what to pay top the list of payroll tax mishaps. Because the rules are so complex, it’s smart to bring in professional accountant, payroll service or use software to avoid payroll mistakes.
- Over Scheduling or Under Scheduling
If you’ve been handling your employee scheduling on a piece of paper, dry erase board, or spreadsheet, it’s time for an upgrade. Just like other manual systems, being offline with your scheduling creates massive room for human error. Over or under scheduling shifts not only has costly implications for payroll, it also negatively impacts employee satisfaction.
- Mishandling PTO
Another area in which mistakes are costly both in terms of finances and employee happiness is paid time off. Team members who put in the work not only deserve a break, but their productivity going forward will benefit from it. Making mistakes with tracking, accruing, and paying out unused PTO is easy to do when you use manual systems. Consider digital solutions to help hold both you and your employees accountable on PTO.
With the correct accounting and payroll measures in place, your business will benefit from smoother operations, better satisfied employees, and far fewer costly mistakes.
Taylor Burke is a contributor for TechnologyAdvice.com. She’s a marketer, storyteller, and techie who loves to learn about and cover payroll, human resources, employee engagement, and other industry topics. When she’s not in front of her screen, you can find Taylor reading, cooking, running, or hanging with her dog—but rarely all four at once.