When managing your business’s books, there are common payroll errors you should be aware of and try to avoid.
Payroll can be particularly complex, and if you aren’t careful, you could be losing money due to mistakes. Here are 3 common errors relating to payroll, and how you can fix them.
The way your employees are classified matters. While it may seem like a small distinction to differentiate employees from contractors, this is a very important piece of information. Even if they are doing similar work or completing the same number of hours, there are legal ramifications that go along with the designation of employee vs. contractor. The Fair Labor Standards Act (FLSA) stipulates certain requirements when compensating employees, such as minimal wage and overtime pay. A worker that is incorrectly classified as a contractor, or FLSA-exempt, may not be paid overtime wages, leading to potential penalties, lawsuits, and payment of back wages.
Solution: You can avoid this costly error by auditing your list of employees periodically, and making sure they are correctly classified. The IRS has specific criteria for classifying workers, which can be found on the IRS form SS-8. Your bookkeepers can also assist in making sure workers are properly categorized and compensated.
2.Overlooking Pay Equity
The Equal Pay Act (EPA) mandates equal pay for men and women in the same workplace, providing they are doing equal work. An important distinction is that job content must be the determining factor, not job titles. Likewise, it is illegal to discriminate based on sex when it comes to pay and benefits, which falls under Title VII. If a claim is filed and the EPA determines that there is unequal wages, you cannot reduce the wages of either party to equalize their pay.
Solution: Carefully analyzing your pay structure will reveal if there are discrepancies between what men and women are being paid in your organization. There are legal pay discrepancies that can help you determine correct payment, such as seniority, experience, training, or additional skills.
Payroll tax violations can incur fines, and a large number of small to midsize businesses are hit with these fines each year. Determining tax withholding and filing can be difficult, and errors in these processes can prompt fines. Payroll taxes should include federal unemployment taxes, federal and state income taxes, and FICA (Social Security and Medicare) taxes. All of these should be documented on IRS Form 940 and Form 941.
Solution: Plan for these taxes in your budget, and don’t simply rely on software or technology to take care of it. Access to bookkeepers with tax expertise is incredibly beneficial in making sure all required taxes are accounted for. Stay up to date on announcements, deadlines, and updates from the IRS as well, since much of the costs incurred in fines are due to tardiness penalties.
B&B Bookkeeping Helps You Avoid Payroll Errors
A closer look at common payroll errors shows what a complex process it can be. With the right people on your team, however, it doesn’t have to be so complicated. B&B Bookkeeping combines Quickbooks™ software with real bookkeeping experts to help you get your Salt Lake City business’s payroll in order. Contact us today to get started.