When electing to run payroll in house, many business owners don't consider all of payroll processing's difficulties. A mistake could cost you the trust of your employees, perhaps resulting in resignations of reliable, talented individuals. But perhaps even more painful, it could cost you thousands of dollars in IRS penalties and hours upon hours of time correcting it.
Payroll errors are common and costly. Statistics show that roughly 40 percent of small businesses incur an average of $845 a year in IRS penalties.
SurePayroll helps small business customers avoid payroll pitfalls, saving them from hundreds — or even thousands — of dollars in penalties. But for those not yet ready to outsource this complex process to a payroll service, we've identified some of the most common payroll mistakes.
Most of the common errors fall into the tax management camp, one of the most difficult aspects of payroll processing. Your level of confidence with federal, state and local tax knowledge combined with the amount of time you have to keep up with tax law changes will help you determine whether to process payroll in house or to outsource to a payroll service like SurePayroll.
Below, we've detailed a few common errors. These are simply some of the most common errors — there are certainly more errors that can take place when running payroll manually.
1) Setting up Payroll Incorrectly
Many errors are a result of the way a payroll was set up. You can calculate wages perfectly and get payroll done on time each pay period. But if you didn't register your business, set up federal, state and local tax withholdings or classify employees correctly, your payroll will be incorrect, and you may soon have the IRS knocking on your door. In order to file the proper amount of taxes, you'll need to study the law and understand how much to withhold from employees for federal and state income taxes, Social Security and Medicare taxes, and other applicable state and local payroll taxes. Plus, you need to understand how much you, as an employer, will pay in taxes.
2) Forgetting to Record Paper Checks
If you've been able to master the necessary payroll tax rules, you need to be sure you don't skip some of the less complicated steps of running a payroll. We've seen that in many instances when small business owners are pressed for time, they make the mistake of giving an employee a manual check — bonuses and payday advances are common examples — but forget to record that check in their payroll processing system. This simple error will leave your books off balance and your tax deposits in disarray. 3) Submitting Deposits Late or Incorrectly
Once you've taken tax funds from employees and contributed tax funds from the business, you need to know when and how those funds should be deposited. Should you deposit monthly? What forms are you required to use? Do you have the option to deposit funds electronically? There are many rules about how often and which method you use to deposit, depending on your business' tax liabilities.
4) Failing to Update Your State Unemployment Insurance (SUI) Rate
At some point, you may receive a new SUI rate from your state agency. If you forget to add the new rate to your payroll system, your filings will be incorrect. Fines will follow. 5) Neglecting to Run Payroll on Time
Small business owners have been known to overpay or underpay an employee because they were in too big of a hurry to check their calculations. Even worse, at times they may forget to run payroll altogether. Forgetting to process payroll leads to unhappy employees. It takes time to rebuild lost trust and morale.
It is important to remember that 40 percent of small businesses will pay almost $1,000 a year in fines due to payroll mistakes, easily avoided by partnering with a payroll service. If you don't want to end up as part of the statistic, consider signing up for SurePayroll. We handle all aspects of payroll calculations and tax management
, send email reminders telling you when it's time to process and protect you against IRS fines. Learn more about our payroll services, or get a free, no-obligation payroll price quote
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