Small Business Owners: Don't Let These Employee Payroll Mistakes Cost You Money
Posted on: 10 October 2017
Many small businesses don't start out with any employees: it's just the proprietors handling everything themselves. When you reach a point where you have to hire employees, this is a good sign; your business has grown to where you need and can support help. However, this also means that you have to handle a payroll, and payroll mistakes can end up costing you a lot of money if you aren't careful. Take a look at some common payroll mistakes that small business owners make and find out how to avoid them.
Confusing Employees and Contractors
Maybe you don't need full or even part-time help, but just someone to handle a specific project or help out during a particularly busy time period. In that case, you might decide to hire an independent contractor instead of an employee. This can often be much simpler for a small business. Contractors handle their own taxes, for example, which is less work for you.
However, the line between "independent contractor" and "employee" can easily become blurred. When that happens, you can find yourself in trouble with the IRS. If the IRS finds that you've misclassified employees as contractors, you could be liable for paying back payroll taxes and be saddled with fines and penalties.
There are ways to tell whether a worker should be classified as an employee or a contractor. For example, contractors can choose when and where to work and are usually only hired on a temporary basis. Make sure that you get this distinction right.
Not Withholding Taxes From Bonuses
If you can not only afford to hire employees but can also afford to give them a bonus for their hard work, congratulations! That probably means that your business is doing great. But don't forget to withhold taxes from those bonuses.
Employee bonuses are considered taxable income by the IRS, so you'll need to deduct federal, state, and FICA taxes just the way you do from ordinary paychecks. Those bonus payments also need to be included when you calculate things like unemployment taxes, and you'll need allow your employees to change their withholding authorization information on their W-4 form for the paycheck with the bonus on it.
Not Posting Workplace Posters
The posters that you see in workplace break rooms which explain the minimum wage or the Family Medical Leave Act aren't just decoration, and employers don't put them up just to be helpful. Those posters are required by law, and if you're putting people on the payroll, you're going to need some too.
Posters may not seem like a payroll issue, but they can be. There have been cases where employees were able to claim additional overtime because the employer neglected to put up the poster explaining overtime pay. You can also be subject to other fines and penalties if you don't put up the workplace posters relevant to your business.
A good payroll services company can help you ensure that your deductions are in order and that you're in compliance with any payroll-related laws that apply to you. Outsourcing your payroll tasks to payroll experts can help you avoid costly mistakes and free you up to focus on your business.
Share