Payroll responsibilities are a crucial part of having employees. Of those payroll responsibilities, the most important is accurate payroll. After all, inaccurate payroll may lead to fines or other penalties. Here are some of the most common payroll problems that businesses face as well as, we think, some good solutions.
1. Managing Overtime and Miscalculating Overtime Wages:
The Fair Labor Standards Act requires companies to pay employees premium wages of at least one and one-half their regular rate for any hours worked over 40 in a single workweek. This introduces a whole new challenge for payroll: not only do you have to monitor exactly how much overtime the employee worked, but you also need to determine the correct rate of payment and factor that in with their normal wages. States may have different guidelines for time and a half. For example, California requires overtime pay for any employee who works more than eight hours in a workday.
According to John Li, Co-founder and CTO of Fig Loans, overtime calculations are crucial. He said: “If you fail to calculate your employee overtime correctly, you may be liable to pay back liquidated damages. That’s a load of cash for a small business owner to fork over, so calculate these hours properly and have employees sign off on their timesheets.”
2. Misclassified employees/ Classifying workers improperly
Companies often don’t realize that not everyone who works for them is actually considered an employee. If you hire independent contractors, temporary employees, or freelancers, they are not treated the same as employees when it comes to payroll. In addition to determining their eligibility for benefits, the distinction dictates whether federal income and employment taxes are withheld. It also determines if you need to use a W-2 (for employees) or a 1099 (for non-employees) when reporting to the IRS. If you misclassify an employee as a contractor, you will have to pay both the employee and employer’s share of taxes, plus penalties and interest. And, you may owe back wages to the employee if you paid less than the minimum wage.
3. Multi-State Complications
If you have employees who work in multiple states (or multiple countries), you are responsible for making sure you’re compliant with all state and federal laws governing those employees. This might be as simple as ensuring you’re meeting minimum wage requirements, or it might be as complicated as having to use a completely different system to file taxes for all the different locations.
These variations can create issues when processing your payroll. On a larger scale, they can lead to costly fines for improper tax filings. If you’re hiring someone in a different state, make sure you or your payroll manager is familiar with tax and employment law in that area. States often have their own versions of laws that differ just enough to cause headaches when paying employees or paying taxes, but it is the business’s responsibility to figure them all out.
4. Using Wrong Tax Rates
Tax rates can change each year (and some do!). Unfortunately, those changes can cause payroll issues (and a mistake on paycheck) if you do not keep track of the tax rate changes.
When you pay the wrong rate, you must make up the difference in owed taxes. And, you might also have to pay late fees, penalties, or interest on the taxes you owe.
Because some states send notices each year to alert employers to tax rate changes, open and review all mail from the state or local governments. And, regularly check the employment tax rates.
5. Untimely Payroll Processing
When you hire employees, you set a pay frequency for the employees’ paychecks. The pay frequency can be weekly, biweekly, semimonthly, or monthly. The federal government does not have set rules on how frequently you must pay your employees. However, you may have state pay frequency requirements.
When the schedule is going to be interrupted, make sure your employees are aware of it. This gives them time to plan accordingly if they need to. Never assume an employee is going to be okay with a late check.
Getting your payroll out on time and correctly each month takes an investment of time and resources. There are professionals available who can handle all the details. Given the risks involved, getting help may be a smart idea. Contact us at: 3pillarsbookkeeping@gmail.com to learn more about our payroll solutions. Ultimately, this isn’t a venture you have to handle alone! With a combine 50 years of experience, our motto is to be, “The Partner you can Count on.”
Alex Bulmer - Three Pillars Bookkeeping and Business Services
763-464-6408, Office@threepillarsbusinessservices.com
1. Managing Overtime and Miscalculating Overtime Wages:
The Fair Labor Standards Act requires companies to pay employees premium wages of at least one and one-half their regular rate for any hours worked over 40 in a single workweek. This introduces a whole new challenge for payroll: not only do you have to monitor exactly how much overtime the employee worked, but you also need to determine the correct rate of payment and factor that in with their normal wages. States may have different guidelines for time and a half. For example, California requires overtime pay for any employee who works more than eight hours in a workday.
According to John Li, Co-founder and CTO of Fig Loans, overtime calculations are crucial. He said: “If you fail to calculate your employee overtime correctly, you may be liable to pay back liquidated damages. That’s a load of cash for a small business owner to fork over, so calculate these hours properly and have employees sign off on their timesheets.”
2. Misclassified employees/ Classifying workers improperly
Companies often don’t realize that not everyone who works for them is actually considered an employee. If you hire independent contractors, temporary employees, or freelancers, they are not treated the same as employees when it comes to payroll. In addition to determining their eligibility for benefits, the distinction dictates whether federal income and employment taxes are withheld. It also determines if you need to use a W-2 (for employees) or a 1099 (for non-employees) when reporting to the IRS. If you misclassify an employee as a contractor, you will have to pay both the employee and employer’s share of taxes, plus penalties and interest. And, you may owe back wages to the employee if you paid less than the minimum wage.
3. Multi-State Complications
If you have employees who work in multiple states (or multiple countries), you are responsible for making sure you’re compliant with all state and federal laws governing those employees. This might be as simple as ensuring you’re meeting minimum wage requirements, or it might be as complicated as having to use a completely different system to file taxes for all the different locations.
These variations can create issues when processing your payroll. On a larger scale, they can lead to costly fines for improper tax filings. If you’re hiring someone in a different state, make sure you or your payroll manager is familiar with tax and employment law in that area. States often have their own versions of laws that differ just enough to cause headaches when paying employees or paying taxes, but it is the business’s responsibility to figure them all out.
4. Using Wrong Tax Rates
Tax rates can change each year (and some do!). Unfortunately, those changes can cause payroll issues (and a mistake on paycheck) if you do not keep track of the tax rate changes.
When you pay the wrong rate, you must make up the difference in owed taxes. And, you might also have to pay late fees, penalties, or interest on the taxes you owe.
Because some states send notices each year to alert employers to tax rate changes, open and review all mail from the state or local governments. And, regularly check the employment tax rates.
5. Untimely Payroll Processing
When you hire employees, you set a pay frequency for the employees’ paychecks. The pay frequency can be weekly, biweekly, semimonthly, or monthly. The federal government does not have set rules on how frequently you must pay your employees. However, you may have state pay frequency requirements.
When the schedule is going to be interrupted, make sure your employees are aware of it. This gives them time to plan accordingly if they need to. Never assume an employee is going to be okay with a late check.
Getting your payroll out on time and correctly each month takes an investment of time and resources. There are professionals available who can handle all the details. Given the risks involved, getting help may be a smart idea. Contact us at: 3pillarsbookkeeping@gmail.com to learn more about our payroll solutions. Ultimately, this isn’t a venture you have to handle alone! With a combine 50 years of experience, our motto is to be, “The Partner you can Count on.”
Alex Bulmer - Three Pillars Bookkeeping and Business Services
763-464-6408, Office@threepillarsbusinessservices.com