4 Small Business Payroll Mistakes and How to Avoid Them

Out of the 33.2 million small businesses operating today, 6.1 million depend on employees. Each of these businesses has people who rely on them for compensation for their hard work. As a small business owner, you want to avoid making small business payroll mistakes when processing these payments. 

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Keep an eye out for these five common mistakes to avoid upset employees and significant fines. 

1. Misclassifying Employees 

There are basically two types of classifications that people can be when working for your small business. First, there are employees. These are people directly employed by the company. 

The other type of worker is an independent contractor. These are people who essentially work with your business, not for it. 

It can be challenging to determine which one of these your workers are. However, it is crucial that you get it right. Your business must pay a portion of an employee’s payroll taxes, while you are not responsible for this with independent contractors. 

Getting the determination wrong can result in significant problems with the IRS and the Department of Labor. 

2. Being Late 

Processing your payroll late has a direct impact on your employees. They depend on you to deliver their pay on time because they have families to support and creditors to pay. When you are late, you erode the trust your employees have in you. 

Outsourcing for payroll creates a solution for this. It is easy to push payroll tasks off when managing your business. Using PEO services lets the experts handle this task so that you never have to worry about being late. 

3. Miscalculations 

Always double-check your calculations. Paying employees the wrong amount results in upset employees. If they don’t catch it, the Department of Labor eventually will, and you will have a bigger mess on your hands. 

Incorrect payments can happen in a variety of ways. It is helpful to perform regular audits to ensure your business makes correct payments. If a mistake does happen, it is best to correct it immediately.

4. Not Keeping Accurate Records 

Do not process payroll and then immediately shred or trash your documents. As a business, keeping accurate records for payroll is crucial for future reference. In addition, the IRS regularly audits businesses, and many end up with substantial fines. 

Not only does the IRS require you to keep records, but you need records to validate your tax filing claims.

In addition, you need to stay in compliance with the Fair Labor Standards Act (FLSA). It requires businesses to keep records for at least three years. 

Avoid These Small Business Payroll Mistakes

If you own a small business, you need a payroll management strategy. This will help you avoid these five common small business payroll mistakes. Outsourcing your payroll processes to a service can address many of these mistakes by letting the professionals handle payment processing. 

Browse our other business articles for more helpful advice on managing your small business.