Ideally, a business would run itself. You wouldn’t have to worry about anything except reaching your target revenue goals and paying your employees. The reality is there are countless nuances of running a business that could lead to complications.
Finding a payroll discrepancy is one of the most notable. Issues like these can cause major problems, and they’re one of the many reasons why approximately 20% of businesses fail within their first year.
We’ve written a guide on how to avoid payroll errors and ensure that you circumvent obstacles. Let’s explore the key information you should know.
Never Miss Payroll Deadlines
Missing payroll deadlines comes with numerous consequences. One of the most notable is tax complications.
These come in the form of expensive fees and financial penalties. Having problems with the IRS could also make you more likely to get audited in the future. This process is often inconvenient to deal with.
Missing deadlines could also prevent you from paying your employees in a timely manner. This strains the relationship your company has with its workers. It might even cause them to leave your organization.
Use the Right Payroll Software
Using professional payroll software is crucial. This allows you to seamlessly consolidate and manage payroll data.
The best payroll software incorporates automation. Automating tasks minimizes the chance of human error. It also drastically improves productivity.
Quality software will provide access to detailed analytics, as well. You can consult this information to make better future decisions. From here, you’ll emphasize strategies that work and rework those that fall short.
Avoid Misclassifying Employees
If you misclassify your employees, you risk paying them the wrong amount. One of the most common mistakes entrepreneurs make is being unaware that certain employees should be exempt from overtime.
The Fair Labor Standards Act (FLSA) declares that employees must receive overtime pay if they work more than 40 hours in a workweek. This is true unless they are exempt due to their employee classification.
Employers sometimes classify non-exempt employees as exempt. This results in them not receiving the required overtime pay.
This puts you at risk of being fined by the FLSA. It can also lead to legal issues, such as an employee filing a lawsuit.
It’s also not uncommon for employers to misclassify workers as independent contractors instead of employees. This error drastically changes how the business compensates the worker and how the worker pays taxes. Even a single error comes with many consequences.
An employer might have to retroactively pay employees the money they owe them. Your company could also get a reputation for failing to compensate workers.
Make Payroll Corrections ASAP
If you notice a payroll issue, correct it as soon as possible. The longer you wait, the more difficult it will be to handle.
Unchecked issues can also lead to additional problems in the future. Get in the habit of assessing payroll data on a weekly or monthly basis. Doing so will keep you aware of developing issues.
Keep Track of Changing Laws
Financial laws change regularly. Unfortunately, being ignorant of regulations doesn’t absolve you of wrongdoing.
You can encounter a large number of issues if you don’t make an effort to educate yourself on laws about employee pay, tax requirements, and payment programs. When researching this information, make sure you use a reputable resource. The last thing you want is to be misinformed and make poor decisions.
Use Correct W-2s
A W-2 form is the only payroll document employees will receive from your company other than a paycheck. This form includes the employee’s taxable income, 401K information, and health spending accounts.
It also shows payroll withholdings for benefits. Employees will use these forms to file their annual taxes. If a W-2 you provide has even a single error, it can cause a number of issues for the employee.
You could also experience financial penalties. It’s best to thoroughly check W-2 information so you can avoid consequences like these.
Keep Your Records Organized
There will likely come a time when you need to consult previous financial information. Having quick access to this data will make your life much easier. It’s recommended to back up financial data in separate locations.
You should store financial archives on both a hard drive and a cloud server. If contingencies arise, you can still find the information you’re looking for. For example, imagine if a hard drive at your company got lost or damaged.
If you don’t have access to remote storage, you might not be able to find the financial information you need. Depending on why you need this data, major issues could arise. If the IRS requests it and you can’t find it, it could be a major headache to resolve.
Work with a Professional
Working with professional bookkeeping services is crucial when managing your business finances. They have the tools and resources to ensure you stay on track and avoid problems you may have otherwise dealt with.
When searching for someone to hire, look at their past reputation. See what other people have to say about the company’s professionalism, customer support, and timeliness. You should also look for professionals who have extensive industry experience.
The more companies like yours they’ve dealt with, the better results you’ll get. Always ask about their pricing structure before making your decision.
It can be frustrating to deal with financial surprises. Ask them what tools they’ll use to handle your payroll needs.
They should use contemporary software, and they should have no trouble providing insight into how it works. As long as you do your due diligence, you’ll higher the best bookkeeping service for your business.
Never Overlook a Payroll Discrepancy
The sooner you resolve a payroll discrepancy, the easier it will be to avoid future problems. The tips in this guide will help you overcome payroll issues and ensure your company stays on the right track.
CloudBookkeeping aims to identify each client’s pain points and develop customized solutions. We have tried-and-true processes that let us tackle any bookkeeping issue. Reach out to us today to learn more about how we can manage your company’s finances.
