As your business grows, you can expect to take on more responsibilities; one of which being payroll. Payroll is one of the core parts of the business function, and it has the potential to build or break the trust of your employees. As you learn how to handle the complex tax requirements that are involved in running a business, it is important to learn about some small, seemingly innocent payroll mistakes, so that you can avoid them. It’s no secret that the IRS takes these matters quite seriously and so should you. Below are some common payroll mistakes that you should avoid.
Payroll Mistake #1: Subpar Record Keeping
One of the top mistakes most employers make is failing to keep accurate, as well as, complete payroll records. Shoddy record keeping or insufficient documentation can prolong a payroll audit, which is something that you, as an employer, want to avoid. Under federal law, you are required to retain payroll records for at least three years, while those records that deal with calculations of wages should be maintained for at least two years. It’s important that you never overlook the importance of implementing a record keeping system. Here are some examples of payroll records to keep
- Time sheets
- Canceled checks
- Tax forms
- Proof of past payments
Payroll Mistake #2: Late Tax Payments & Filing
If your business is experiencing some cash flow problems, you might be tempted to pay other bills first, such as vendors and utilities. However, this is a big mistake. Payroll taxes should be a top priority, and some employers underestimate the costs associated with late payments. Late payments attract penalties, which could potentially be equal to the unpaid taxes plus some interest. The IRS could also seize personal assets for this, as you are held personally liable. You could even be charged with a crime for borrowing payroll taxes, which is against the law.
Payroll Mistake #3: Misclassified Employees as Subcontractors
How you treat an employee in terms of benefits and taxes is very different from the treatment of a contractor. Most businesses prefer independent contractors, especially when the work performed is temporary. By classifying employees as independent contractors, the employer avoids his share of taxes. It is your duty to differentiate between the two, since it makes a huge impact on your payroll process. Learn the difference between an employee and an independent contractor to avoid mistakes in the future.
Payroll Mistake #4: Incorrect Employee Details
While this might not sound like a big deal, it is vital that you have 100% accurate information regarding workers. This includes, the start date, social security number, current address and if applicable, their termination date
Although it may seem simple, there is little room for error when it comes to payroll taxes. This is why it’s a good idea to get assistance from a professional to avoid potentially hefty fines from the IRS. Contact the experts at Bodine Perry at (855) 851-8318 or visit www.bodineperry.com.