Managing payroll is one of the most vital tasks business owners have to handle. Although seemingly manageable, a study conducted by the IRS revealed that about 40 percent of SMEs in America face IRS penalties due to incorrect payroll filing. In 2017 alone, more than five million employers faced civil penalties that totaled over seven billion dollars. For small businesses, such fines could bring about the downfall of the company. Contrary to what some may think, many enterprises are susceptible to payroll mistakes, often due to a diverse work environment. Even so, there are plenty of ways to mitigate payroll errors and ensure your business doesn’t register damaging losses.
Many famous hedge fund managers engage in philanthropy, often through their own foundations. Leon Cooperman of Omega Advisors founded his foundation with his wife Toby, and he invested the foundation's funds into many hedge funds and other assets. Q3 2021 hedge fund letters, conferences and more Here are Leon Cooperman's favorite hedge funds based on Read More
Since people usually handle payroll, one of the best ways to moderate mistakes is to employ an automated payroll system. Therefore, using online check stub creators to get pay stubs is one of the best ways to prevent payroll mistakes. Given that paycheck stubs are vital documents that all employers should provide to their workers, using an automated check stub creator can help streamline your company's payroll. Doing this helps business owners avoid errors that can lead to mountainous civil penalties. Still, several other practices can also help you avoid detrimental payroll mistakes.
Most Common Payroll Errors
To effectively steer clear of payroll discrepancies in your company, you must first identify and comprehend them. Therefore, here are some of the most common mistakes made during payroll management.
Failure To Process Payroll Promptly
Contrary to what people may think, there are many instances where employers process payroll considerably late or fail to process it altogether. As you can imagine, such discrepancies have detrimental consequences to both the image and bottom line of the company. Moreover, most states in America have laws that penalize employers who fail to meet payroll deadlines.
Providing Incorrect Details
Submitting inaccurate details of employees and their pay is arguably the most common payroll mistake. Providing incorrect or outdated employee information when managing payroll could land your company on the wrong side of the IRS. The IRS can also penalize employers who submit wrong amounts of payroll taxes. Even so, the IRS is seldom harsh when handling such payroll errors. Still, if the mistake was a result of neglect or incompetence, you can be sure to face the wrath of the IRS.
Missing Adequate Payroll Records
Several state and federal laws dictate a specific amount of payroll records that companies must keep. In most cases, the law requires companies to keep records of both existing and former employees. For this reason, all business owners ought to be familiar with the laws on employee payroll records in their states.
Depositing Incorrect Employment Taxes
State and federal laws require employers to compile and report all employee taxes at various intervals. Therefore, business owners must submit all withheld employee taxes they collect over a particular period to state, federal, and local tax authorities. While this is a seemingly straightforward task, it can cause lots of confusion if not properly handled. Consequently, such a mess could cause trouble with the IRS and lead to detrimental financial penalties and other severe repercussions.
How To Avert Payroll Mistakes
With an overview of some of the most menacing payroll discrepancies, you can easily prevent them from occurring. There are plenty of practices that employers can take up to avoid these potentially detrimental errors. Here is a list of some of the most effective methods.
Create A Payroll Checklist
There's no denying that there are plenty of issues to sort out when managing payroll. Apart from preparing employee payments, employers have to calculate the total deductions, remove any employee contributions, and determine overtime hours. All this can take a toll on business owners, which often leads to mistakes. However, creating a checklist of all payroll-related tasks will go a long way in mitigating errors and delays. You can also integrate the to-do list into your calendar to ensure you get everything done in time.
Run Reports In Advance
Similar to how practice makes perfect, running your payroll reports well in advance will help you sniff out any mistakes. Doing this will give you more time to analyze your payroll reports and make corrections where necessary. Not running reports early enough is one of the most significant contributors to payroll errors in businesses. Therefore, employers should avoid running preliminary payroll reports a few days before they're due to ensure they correct any oversights.
Promptly Deal With Payroll Mistakes
Despite how astute an employer can be at managing payroll, they can never guarantee faultless reports. After all, man is to error. Even so, business owners can reduce the chances of making mistakes if they correct any errors promptly. There's no denying that procrastination is the thief of time. Hence, to avoid paying a hefty price for errors, employers should examine payroll reports early and make any changes in good time. The sooner you recognize and mend any mistakes, the less likely you'll end up in a civil suit.
Budget For Tax Season
One of the main reasons why payroll errors are increasingly hefty is to prevent cases of tax evasion. Some uncouth employers may want to cut corners and avoid paying employment taxes. For this reason, the IRS has placed stringent measures to discourage the filing of frivolous payroll reports. Even so, since employment taxes are due on a specific schedule, business owners can effectively budget for them well in advance. This helps employers avoid penalties due to late payments, inaccurate reports, and failure to comply with IRS guidelines.
All business owners understand the importance of proper staff management, especially when it comes to payment. Unlike what some people believe, payroll errors are detrimental to the profitability and integrity of a company. Overlooking any mistakes when managing payroll could lead to substantial financial penalties and even cause the downfall of a company. What's more, employers could even face jail time for payroll management errors. Fortunately, there are plenty of ways to avoid this pitfall, as highlighted in this article.