Payroll processing and management are not as simple as everyone assumes them to be. Efficient payroll processing at scale is a complicated task to accomplish without external assistance from outsourced accounting firms or payroll service providers.
Payroll processing is laden with so many complex tax regulations at the state, federal and local level that errors and mistakes are bound to happen, leading to penalties from IRS and damage in reputation. However, there is an upside. All these errors can be curtailed, mistakes can be avoided and compliance can be ensured by crafting a consistent framework for payroll processing and management.
If you are a small and medium business that already has a payroll in place then the first step in this process is to be aware of the common mistakes majority of businesses and steer clear of them with the help of your accounting resources. So according to our accounting experts at Outsourced Bookkeeping here are the common payroll mistakes small businesses make & along with simple tips to avoid them:
- Payroll Tax Mishaps: According to IRS, more than 40% of the businesses are fined every year for payroll tax-related issues – missed or late payments claiming a major share. Given there are different types of state, federal and local taxes, small businesses usually encounter a lot of ambiguity resulting in mistakes in filing payroll taxes.
Having payroll providers does help as they usually help businesses in figuring out the taxes pertaining to the payroll. Even accounting firms that provided tax consultation services can also be leveraged to avoid these payroll-tax mishaps.
- Incorrect Payroll Setup:Incorrect setup of payroll management triggers a slew of payroll mistakes. A business starting out must ensure the right setup that perfectly attends to reimbursements, incorporate taxes and employee classifications. Without the right set-up where the compliance is not met and employees are not classified properly is bound to make errors increasing the risk of penalties.
- Employee Information Errors:A common mistake that inevitably leads to payroll processing problems and fines is incorrect or outdated employee information. While misspelt titles, names, errors in SSNs during the loading phase causes unnecessary headaches, not maintaining up to date record (changes in residence, marital status etc.) is a sure-shot way to trigger payroll problems, errors and even fines.
- Employee Misclassification:Employee misclassification is a common mistake committed by businesses that employ independent contractors. And this misclassification may often end up with hefty penalties for both federal and state governments in addition to lost time and damage to the reputation.
Lack of right information on employee classification and tax regulations commonly cause misclassification. If you are a business that has faced similar problems, it helps to consult an expert remote accounting firm with a specialization in payroll processing and tax consultation services.
- Unemployment tax errors:Like payroll taxes, unemployment taxes must be paid accurately on schedule and are to be filed every payday. The requirements vary as per the employee’s state of residency and when the business operates in multiple locations, these rules and regulations have to be verified with strict attention. And naturally, most businesses tend to commit mistakes while filing these unemployment taxes and run the risk of penalties.
- Net vs Gross Calculation Errors:Due to payroll taxes and the problems that arise with them calculating the net or gross payroll has always been a challenging task for small and medium businesses. Since the true CTC (cost to the company) is always higher than the salary you offered them, calculation errors often creep in and result in a penalty to IRS.
- Lack of right information on payroll rules:The biggest mistake most businesses commit that is the root cause of all the mistakes above is the lack of the right information and understanding of payroll rules and regulations. Though the rules and regulations pertaining to payroll are complex, the right understanding is essential for running a business. Businesses can solve this problem by hiring payroll service providers who are experts in providing payroll services. If you are a small and medium business that needs assistance, you can also choose to work with an expert accounting firm specializing in payroll compliance and tax consultation services.
How Outsourced Bookkeeping can help?
As a remote accounting firm offering full-scale accounting and bookkeeping services in addition to tax consultation and filing services, Outsourced Bookkeeping helps small and medium businesses cater to every need to aid in business growth.
Equipped with an expert team of expert accounting resources lead by experienced CPAs, Outsourced Bookkeeping can not only fill your current process gaps but also provide comprehensive services to ensure faster turnaround, greater accuracy, and high ROI. You can contact us here: https://outsourcedbookeeping.com/