Running a small business can be tough. There is tons of paperwork to file and reports to prepare. And perhaps, the most challenging of all is preparing payroll reports. With the task of running a business and managing employees, business owners often commit payroll mistakes — mistakes which can be costly and tedious for any entrepreneur. For this reason, many small business owners are seriously contemplating getting payroll services to do these tasks for them. Often, the cost is justified by the savings they could get from all the penalties they could incur should they make payroll mistakes, which includes:
The most common payroll error that small business owners commit is misclassifying their workers. Some business owners do not see this as an issue, but once the IRS does an audit, it could cost their business in terms of paying penalties and fines. As such, it is crucial for you to distinguish between an employee and an independent contractor. Remember, when you misclassify, you are also causing pain for your employees as they may not receive the exemptions due to them and they can even miss out on overtime wages.
Failing to Pay On Time
One of the downsides of doing your own payroll is failing to have a payroll calendar. When you don’t have this, there is an excellent possibility that you will miss out on important deadlines. These deadlines can include filing of the necessary state and federal returns and even paying your employees. Failure to pay tax returns can incur penalties, and when you miss out on your payroll schedule, your records will end up disrupted. Worse, your employees will feel demotivated, and it could affect your business reputation.
Absence of Records
As a small business owner, you might be so preoccupied with operating your business that you fail to maintain records of all the payments. Without a systematic record-keeping practice, it would be harder to keep track of all the relevant data about your employees. You could also end up making errors on their details, mixing up Social Security Numbers and even employee numbers. Absence of records can impact operational efficiency and eventually, your bottom line.
Overtime Pay Miscalculations
Overtime pay must follow the provisions set by the government. You cannot merely pay them based on your calculations. Every business owner is required to understand and apply what is mandated. Miscalculating overtime pay can lead to your workers filing complaints, and this can spell trouble for your business.
Unstructured Payroll Practice
Payroll is more than just paying your employees. You have to make sure that you are making the accurate calculations and that you are paying them on time, with the right benefits and exemptions. Doing payroll functions on your own may not save your business money, especially if you don’t have the time to do it right. Eventually, it can be the cause of why you are failing in your operations.
Simple payroll mistakes can be forgivable. However, if they keep happening, they can tremendously affect your business as a whole. Not knowing what to deduct and miscalculations can be the reason why your business is not earning enough. Plus, you also have to factor in the costs when the government finds out about your recurring mistakes. With all the penalties and fines you may have to pay, it could become the very reason why your company would eventually go under. While it can be tempting to do your own payroll functions, as a business owner you have to make sure that you have adequate knowledge to carry this out successfully. If not, it might be best to work with an experienced accountant or a reliable payroll service to help you streamline your payroll processes.