July 11, 2017

5 Costly Payroll Mistakes Small- and Medium-Sized Businesses Should Avoid

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Payroll is hard enough in a company of one. Anyone who has grown a business on their own or who has worked in a contractor capacity knows that managing timesheets, invoices, and worst of all, taxes, is a burden not easy to bear. The larger your business grows, the bigger that burden becomes, and so too does the room for error.

ALSO READ: The Top Payroll Software For Enterprise And SMB

Yet while you can forgive yourself for messing up your own check, as you add employees to your company, payroll problems aren’t so easily forgotten: Your team relies on accurate and timely payroll operations in order to live well; your business can only succeed if your budget is correctly balanced; and the IRS isn’t that understanding of excuses like, “I’m new to this” or, “Oops.”

Payroll mistakes have very real and very costly consequences. Here are five common payroll errors that with the right knowledge, tools, and preparation, your small- to medium-sized business can avoid.

ALSO READ: How to Choose the Right Small Business Payroll Software

1. Employee Misclassification

Exempt or non-exempt? Contractor or part-time employee? The rules governing how employees are classified are created to protect individuals from being taken advantage of by their employers. But most employee misclassification mistakes are a result of simply not understanding where the lines are drawn and how the labels are determined. The IRS is increasingly auditing for these classifications as mistakes can result in underpaid payroll taxes. In today’s gig economy, it’s smart to deeply familiarize yourself with the rules or consult an expert.

2. Using a Paper-Based System

The homegrown system for tracking hours and invoices that feels comfortable because you’ve had it in place so long is actually uncomfortably close to the danger zone. Paper gets misplaced, thrown away, or shuffled around. It’s not only notoriously inaccurate, it’s a time consumer. Manually moving data from paper to online systems offers much room for duplication, deletion, or other human errors.  Doing payroll yourself is an option but switching to a digital solution will prevent costly mistakes and save valuable time during tax season.

3. Poorly Handled Payroll Taxes

The list of Federal tax rules encompasses 75 pages of paper and doesn’t even begin to touch on the many and varied rules for state and local taxes. It’s enough to send anyone’s head spinning and errors always come back around to haunt you to a costly end. Late payments, missed payments, or simple lack of knowing what to pay top the list of payroll tax mishaps. Because the rules are so complex, it’s smart to bring in professional services or payroll software to avoid this mistake.

4. Over Scheduling or Under Scheduling

If you’ve been handling your employee scheduling on a piece of paper, dry erase board, or spreadsheet, it’s time for an upgrade. Just like other manual systems, going offline with your scheduling creates massive room for human error. This dark space is growing even larger as people become more reliant on their phones for information about work. Over or under scheduling shifts not only has costly implications for payroll, it also negatively impacts employee satisfaction.

5. Mishandling PTO

Another area in which mistakes are costly both in terms of finances and employee happiness is paid time off. Team members who put in the work not only deserve a break, but their productivity going forward will benefit from it. Making mistakes with tracking, accruing, and paying out unused PTO is easy to do when you use manual systems or don’t have multiple systems synced. Digital solutions can help hold both you and your employees accountable on PTO.

With the correct payroll measures in place, your business will benefit from smoother operations, more satisfied employees, and far fewer costly mistakes. Not sure where to start when it comes to payroll or hr software? Use our Payroll Software software category page to compare more options, or contact one of our Technology Advisors for a free consultation.

Top Human Resources Software Recommendations

1 Paylocity

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Simplify payroll, automate processes, and stay tax compliant, all in one spot. Our tools help you tackle the day-to-day, so you can focus on your people. Empower employees to view checks, request time off, clock in/out and update their personal data with Employee Self Service. Pull expense reimbursements into paychecks and run custom reports to get the data you need. Build a better future for your organization with a scalable solution focused on your business outcomes, priced for your budget.

Learn more about Paylocity

2 Rippling

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Rippling is the first way for businesses to manage all of their HR, IT, and Finance — payroll, benefits, computers, apps, corporate cards, expenses, and more — in one unified workforce platform. By connecting every business system to one source of truth for employee data, businesses can automate all of the manual work they normally need to do to make employee changes.

Learn more about Rippling

3 Justworks

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Justworks makes it easier to start, run, and grow a business by giving entrepreneurs and their teams access to big-company benefits, automated payroll, compliance support, and HR tools in one simple platform. Using Justworks means that you can focus on what matters most – running your business. Justworks also offers access to ancillary benefits like 401, life/disability insurance, workers' comp, and more, all seamlessly integrated into the platform. The best part? Justworks offers 24/7 support.

Learn more about Justworks

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