HR and payroll mistakes can create big problems for businesses. What seems like a minor oversight could lead to fines, wasted time, and higher expenses for the organization. Make sure you avoid the following five common human resources and payroll mistakes that could harm your business.
Withholding the Wrong Amount for Taxes
Tax laws change so frequently that it’s nearly impossible for SMBs to keep up. Unfortunately, the IRS only offers basic information about:
- Federal income tax
- Social Security tax
- Medicare tax
- Federal Unemployment tax (FUTA)
- Self-Employment tax
A lot of companies handle this challenging situation by outsourcing their needs to an accountant. More often than not, it makes more sense to choose a professional employer organization (PEO) that can handle all of your payroll and HR needs. Instead of getting tax services, you get a comprehensive solution that streamlines your whole organization.
Worried that you might face fines because you didn’t withhold the correct amount for local, state, and federal taxes? America’s Back Office can handle all of your employment-related tax reports. Learn more about ABO’s turnkey payroll solutions to protect your business.
Failing to Generate the Correct Tax Forms
In addition to withholding taxes, filling out tax forms, and reporting to the government, you must make sure that everyone you pay gets the correct tax forms. That might not sound too difficult until you look at the variety of workers you have.
For example, your part-time and full-time employees should receive W-4 certificates that show their earnings and withholdings. A contractor who you paid $600 or more over the fiscal year should receive a 1099 form. (Anyone you pay less than $600 can report their own income.)
If this still sounds simple, stop to consider that there are six types of 1099 forms:
Do you know which type you should give someone who, for instance, you paid $1,000 to for designing your new logo? Making the wrong choice can cause tax problems for you and the contractor.
Recommended reading: 8 Ways to Save Time Processing Your Business’s Payroll
Misclassifying Contractors and Employees
Using contractors can benefit your business in several ways. When you hire a contractor for a job, you don’t need to spend money on their payroll taxes, training, or materials. The opportunity to save time and money tempts too many companies into misclassifying contractors and employees. You might not do it intentionally. You just want to believe that someone meets the qualifications of a contractor, so you convince yourself that they do.
There are strict rules about who qualifies as a contract worker. If you control the person’s schedule or how they do their job, you probably cannot count them as a contract worker. Instead, you have an employee, and you may have to pay additional taxes and benefits.
Don’t mistakenly assume that someone is a contract worker just because of how you pay them. Other aspects of the relationship come into play. Misclassification could mean that you pay unexpected taxes that lower your profits.
Missing Payroll Mistakes Because They Don’t Keep Records
Unless you have a payroll processing service that provides legal and record-keeping support, the government will hold you responsible for maintaining your records. Small businesses struggle with this requirement because they don’t always have enough money to pay for an in-house bookkeeper or accountant. The owner might know how to do a certain job well, but that doesn’t necessarily mean the person knows how long to keep payroll, tax, and other financial documents.
Failing to keep the correct records also makes it impossible for you to catch payroll mistakes. If you think you accidentally paid Employee A $1,000 too much last year, you need evidence to prove it. Otherwise, you lose $1,000 and the employee gets to keep it. Without the right records, you can’t audit payroll or prove that anything happened.
You might not have the time or resources to keep careful records while managing a business. Schedule a consultation with America’s Back Office to reduce your administrative workload so you can focus on business success instead of record-keeping.
Calculating Overtime Pay Incorrectly
As of 2020, overtime rules state that you must pay salaried employees overtime when they work a certain number of hours. The rule doesn’t apply to every salaried employee, though. It depends on how much they earn. Does that sound confusing? It gets worse. The salary amount that exempts you from paying overtime can change any year.
Calculating overtime gets a little easier when you pay your employees hourly wages. According to the Department of Labor, you must pay at least 1.5 times a person’s hourly wage when they work more than 40 hours during the same week. In other words, if someone you pay $10 per hour worked 45 hours last week, you would pay them the regular wage for 40 hours (40 * $10 = $400) plus time and a half for the other five hours (5 * $15 = $75).
Unfortunately, it’s about to get complicated, again, because your tax withholding changes when you pay overtime. No wonder it’s so easy for businesses to make payroll and HR mistakes.
How America’s Back Office Can Help
HR and payroll mistakes can cost your business a lot of time and money. You can avoid potential mistakes by outsourcing your HR and payroll needs to a PEO like America’s Back Office. American’s Back Office offers turnkey solutions that will make your business more efficient while saving you money. Learn more about your options by scheduling a consultation today.