You Want To Avoid
To avoid a painful audit, every
business should have a system in place for processing its
payroll. To help you create better payroll
processes in your organization, we have listed below the top
10 payroll processing mistakes many companies make (possibly even yours).
Mistake #1. Bad Record-Keeping - Data entry mistakes can cost
your company because the government can penalize you for
them. The most frequent data entry error involves mismatching
employees' names and Social Security numbers.
Mistake #2. Calculating Overtime
Pay Incorrectly - You must follow specific legal guidelines when determining
overtime compensation. If your 'exempt' employees are
misclassified, you could be underpaying them.
Mistake #3. Classifying Workers
- Workers are generally
classified as either employees or independent contractors. Getting
this classification right is a big deal. Depending on the
classification, how compensation gets reported to the IRS is
different (Form W-2 vs. Form 1099).
Mistake #4. Failing To Ensure
Confidentiality - Payroll information is legally confidential. Only senior
managers and the payroll department should have access to that
Mistake #5. Failing To Send 1099s - If you pay an independent
contractor at least $600 in any calendar year, you must
send a 1099 by January 31 of the following year. Even some large
organizations fail to send these out on time.
Mistake #6. Improper Handling of
Garnishments - If employees are ordered by the court to pay levies, child
support or wage garnishments, your company is required to send a
portion of his or her check to the appropriate party. Failure to do
so could lead to legal trouble.
Mistake #7. Inadequate Backup - What would happen
if everyone in your payroll department got the flu
simultaneously? The state, IRS and employees still require payment
even if your payroll department employees are sick. Don't rely
on just one person or computer system to understand and perform the
functions of the payroll department.
Mistake #8. Missing Deadlines - If you make late payroll tax
deposits, your company could incur large interest charges and
fines. To avoid this, make sure you keep (and reference daily) a
payroll calendar. Report everything to the appropriate government
agencies in a timely fashion.
Mistake #9. Relying On Automation - While there are several useful
software programs that will help you process payroll, you must
still double-check all results. Additionally, if you provide
incorrect information, your software program will not give you
Mistake #10. Throwing Out Payroll
Records - You must
save all canceled checks, W-4 forms, timesheets and other records.
Most states require that you hold them for 4-6 years.
Executive Summary: Common payroll processing errors
are frequent. Failure to process payroll accurately or on time can
lead to government penalties, fees and irate employees. To avoid
these common pitfalls, stay on top of things and always have a