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New Year, Clean Slate: Three Payroll Mistakes to Avoid in 2018

Posted On
1/15/2018
By
Stephanie Davis

Mistakes happen. One area of your small business you definitely don’t want to see a mistake? Payroll. Small business owners often struggle with payroll because there are so many rules and regulations. The scary thing about payroll mistakes is you might not even know you’re making one until you get slapped with a fine or in trouble with the IRS. To make 2018 a year of payroll-free mistakes, check out our list of the most common mistakes small business owners make and how to avoid. 

1. Misclassifying Employees

Why is this a problem?

You may think it’s not a big deal if you accidentally classify an exempt employee as non-exempt, but it makes a big difference in the eyes of tax agencies. Exempt employees are those that are ineligible for overtime, while a non-exempt employee is eligible. If you mark a non-exempt employee as exempt, that employee is potentially missing out on missed wages. It’s also important to be careful when evaluating your W2 and 1099 employees. There are different rules for employees and independent contractors and you need to be sure about how to classify them.

How do you avoid this?

By knowing the differences between the different types of employees you can employee as a small business owner, you can successfully set the employee up to be paid properly and avoid being fined:

  • Exempt = not eligible for overtime
  • Non-exempt = eligible for overtime
  • W2 = employee with set salary and work expectations
  • 1099 = contractor with a timeline for how long they will work for you

Tip: If you’re confused about how to classify an employee, it’s best practice to review employee set-up with your accountant or financial advisor as you prepare to onboard new hires. 

2. Paying Payroll Late

Why is this a problem?

Not only will your employees be upset and lose trust if they aren’t paid on time, you also run a real risk of breaking compliance laws set by your state.

How do you avoid this?

First set a pay schedule that works for you and your employees and stick to it (some states have payroll scheduling requirements by industry—be sure to confirm with your accountant or financial advisor). The most commonly used payroll scheduling options are biweekly (every two weeks) or semi-monthly (twice a month). Depending on your business and associated requirements, you may also have the option to pay your employees weekly or monthly. While you might think that once you’ve determined your payroll schedule you can set it and forget it, you need to be careful of bank holidays. For example, if your normal payday is Friday, but a bank holiday falls on a Friday one pay period, you’ll want to make sure employees get paid the day before.

Note: If you use a payroll provider, make sure you know what their policy is on late payments. Here at SurePayroll you need to approve payroll by 2pm two business days before your employees are paid. However, if you are late in running payroll, we do offer same-day or one-day payments, as well as the ability to cancel payroll if you make a mistake. Learn more about flexible payroll options you should look for as you evaluate potential payroll services here.

3. Incorrectly Paying Taxes

Why is this a problem?

Taxes are tricky and always changing, which makes it even easier for mistakes to happen. When you don’t pay the proper payroll taxes, you have to make those payments up, and usually face penalties and interest.

How do you avoid this?

Stay up to date with the required taxes for your small business at the federal, state, and local levels. For example, some states require that you pay an income tax, while others do not. At the beginning of each year check to see which rates have changed. These can include: federal income tax, Social Security tax, Medicare tax, federal unemployment tax, state income tax, state unemployment insurance tax, and local income tax. What makes 2018 an extra important year to check taxes is the new tax bill that was passed by Congress at the end of 2017. To easily check out the changes and prepare for your 2018 taxes, check out our guide here.

Note: If you use a payroll provider or are looking for one, find out if they have any guarantees about tax protection. Here at SurePayroll we guarantee that your taxes will be paid and filed correctly.

Bottom Line

Accurately processing payroll and filing payroll taxes can be more complicated than you originally thought. It’s definitely a “just because you CAN doesn’t mean you SHOULD” situation. If you feel overwhelmed and are worried you can’t do this alone, you can always outsource your payroll or work with an accountant. While you will still be responsible for entering and/or certifying that the payroll details are accurate, having extra eyes can make sure you pay employees on time and adhere to tax laws. You didn’t go into business to run payroll – don’t let a costly payroll mistake be the reason you go out of business. 

This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.