Summer can be a busy business season, with warmer weather attracting new customers. Help is always appreciated during this busy season; however, this can also lead to some hurdles during payroll with multiple new staff members onboard. These mistakes can be very costly if you are not careful. Here are some of the most common payroll mistakes that small businesses can make and how to avoid them.
By far, one of the most common mistakes that small businesses can make during payroll is the misclassification of workers. When bringing on board new or temporary help, it’s important to understand the difference between whether your new staff is an employee of the company or an independent contractor. This is crucial since mistaking one for the other can lead to state and/or IRS penalties that could have been avoided.
Employees are entitled to minimum wage, overtime pay, and benefits. Independent contractors, on the other hand, require less of your time to handle. These workers are not entitled to minimum wage or benefits that employees have access to. Instead, independent contractors act as self-employed workers who offer their services to clients. Meaning that they are responsible for their own expenses.
For those who are still unsure of how to classify a worker, the IRS offers individuals Form SS-8. This form can help determine if the individual falls under an employee or independent contractor. Additionally, the IRS also has an online guide to solve this issue.
Another big mistake that can be easily overlooked is failing to accurately track and calculate time. While this mistake can seem a bit obvious, it can come up during the summer season. Many employees may choose to open their availability due to more available time on their hands, which can lead to irregular work hours.
Similar to misclassifying workers, failing to accurately track and calculate a worker’s time card can lead to issues with the IRS. Additionally, this can also lead to lawsuits from workers who have been underpaid for their services.
In order to keep away from any unwanted lawsuits during the busy summer season, make sure that time cards or digital logs are filled out correctly and daily. On top of this, make sure that any overtime laws have been met. For example, if an employee has worked over 40 hours during the work week, or if an employee is subject to receiving time-and-a-half pay, then you must make sure that the employee receives their pay benefit during that pay period.
Lastly, remember to check with your state’s law regularly for new regulations that have been put in place for workers.
Another easy mistake that can be overlooked is losing track of payroll deadlines. Especially during a hectic summer season, deadlines can be overlooked. While missing a deadline or two can be easy to forget, constantly missing a payroll deadline can lead to serious legal and financial issues. Not only does this cause problems for the business, but it also causes problems for all employees who are receiving their checks on late notices.
Choosing to miss payroll deadlines not only violates state and federal law, but constant delays can trigger tax audits. On top of this, employees can file legal claims against your business, which can lead to even more financial troubles down the line.
In order to stay clear of any lawsuits or tax audits, make sure that you create an organized payroll calendar. This calendar should have alerts for payments and tax deadlines. Additionally, most payroll software offers automated reminders to ensure that you don’t ever miss a payroll deadline. So stick to a payroll calendar and honor it.
No matter the type of business structure, any business with employees is responsible for withholding and paying various payroll taxes. These taxes fund government programs like Social Security, Medicare, and others. For this reason, the IRS may impose some severe penalties or even criminal charges on those who are noncompliant.
In order to stay away from any legal troubles with the IRS, it is crucial that you double-check your payroll schedule and make sure that you stay up to date with any tax rate changes.
If in any case your business does get audited, sued, or investigated by the IRS, your payroll record will be your best defense to avoid any more damage to your business. For this reason, making sure that your payroll records are clean and organized should be a top priority within your business. While especially during the summer season, when things can get busy, falling short of a clean payroll record can also lead to fines or other claims.
To make sure that your records are up to date, make sure that the following is able to be found.
Additionally, the IRS does require that all businesses keep these records within their files for at least four years.
To keep your records organized, make sure to use any tools offered in your payroll software that can track, calculate, and store documents efficiently. It’s also always a good idea to conduct internal audits to make sure that all records are kept safe and accurate.
While the summer season can lead to a shift in work hours and an increase in the volume of customers, it’s important to always be alert to payroll requirements. Easy fixes that are overlooked can turn into fines or even criminal charges if the mistake is not fixed. For this reason, we recommend that business owners stay organized, alert, and up-to-date with any payroll regulations.
While the summer season leads to an influx of customers, bookkeeping can also be lost in the shuffle of priorities. Contact our team at LedgerFi, where we’ll handle the books!