Common Employee Payroll Mistakes You Need to Avoid at All Costs

20 percent of small businesses in the United States have at least one paid employee.

If your small business is among these, one of your biggest responsibilities is to pay your workers accordingly. Payroll management might seem like an easy thing to do especially when you have one or two employees, but things can start to get complicated as your staff increases.

This can leave you prone to making payroll mistakes that can attract fines and lawsuits, and even harm the reputation of your business.

To help you keep your payroll operations above board, we are sharing common employee payroll mistakes and what you can do to avoid them.

Read on!

Misclassifying Your Workers

Generally, workers fall into three categories: full-time workers, part-time workers, and independent contractors.

The classification of these workers determines how you can supervise and terminate their services, and importantly, pay them. Federal and state law typically requires you to withhold and pay taxes on the wages of full-time and part-time workers. You don’t have an obligation to do the same for independent contractors or freelancers.

As such, you must ensure that you’re classifying your workers correctly. If you hire part-time workers and misclassify them as freelancers, for instance, you might violate the tax code on withholding taxes.

Having a good knowledge of worker classification will help you avoid making this mistake.

Failing to Pay Your Worker on Schedule

Your employees won’t sue you for paying their salaries a day or two late. Salary delays are common in most organizations.

However, if you’re failing to pay your workers on schedule consistently, you might be shooting yourself in the arm. Your employees have financial obligations and they rely on their salary to meet them. Delaying their salaries every other time isn’t going to help with their morale and motivation.

Consequently, the collective productivity of your workforce might slump, which means your bottom line can take a hit as well. When you fail to pay on schedule, you also run the risk of missing the deadline for submitting withheld taxes.

To avoid this, always prioritize your employees’ wages.

Mishandling Payroll Records

You don’t discard last month’s payroll records just because you already paid your employees. If you do so, you’ll be committing a crime.

According to the Fair Labor Standards act, you need to keep payroll records for three years. You must also keep the records that show how you calculated your employees’ wages for two years.

Even without the legal requirement, proper records management is a sound business practice. In case of an audit or when you simply want to verify something, you can jump into your records and find what you need.

Failing to Let an Expert Handle Payroll

As a small business owner with a few employees, you might feel that you’re competent enough to handle employee payroll. Plus, with the right technology, you can automate the function.

However, as your business grows and payroll starts to get heavy and complex, don’t make the mistake of holding on to the payroll function. It’s time to bring in a professional.

You can hire an in-house specialist or outsource the task to an experienced company like Payroll Services Australia.

Avoid These Employee Payroll Mistakes

Employee payroll mistakes can land your business in trouble. From facing regulatory audits and fines to putting your company’s reputation on the line, making any of these common mistakes has a cost. The good news is you now know how to avoid them.

Keep reading our blog for more small business tips and insights.