6 Common Payroll Mistakes (And Why You Should Outsource)

Common Payroll Mistakes
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Are you thinking about doing payroll for your small business? Whether you’re a new or seasoned business owner, doing your own payroll might seem like a good way to save money.

Well, you might want to think again. There are a number of common payroll mistakes you could potentially make. 

Let’s take a look at six of the most common payroll mistakes and explore why you might want to consider setting up a managed payroll system through a company that specializes in this service. 

Mistake #1: Not Keeping Up With Laws and Regulations.  

One of the most challenging aspects of managing your payroll is keeping up to date with laws, rules, and regulations. New payroll laws and regulations are being passed all the time, and not staying compliant with them can cause major complications for your business. 

Mistake #2: Using Incorrect Tax Rates.  

A common payroll mistake is using the wrong tax rates. The problem is that they change frequently. It’s important to stay on top of things when it comes to federal income tax, FICA, federal unemployment tax (FUTA), state income tax, state unemployment tax (SUTA), and local income tax. (That’s a lot of tax rates to keep up on!). 

Mistake #3: Making Withholding Errors. 

Withholding errors are another common payroll mistake your business may be making. This can happen when you fail to withhold state and federal taxes. A more likely mistake is inaccurately calculating pre and post-tax deductions. Another common error is forgetting to include things like bonuses, awards, and gift cards. 

Mistake #4: Miscalculating Your Employees’ Pay. 

Imagine going through the process of paying your employees — only to find out you’ve miscalculated your employees’ pay. Yikes! Even though this sounds like a nightmare and a scenario that doesn’t happen, it can and does happen. It will mean you need to adjust your employee’s pay.

To prevent this mistake, you’ll need to double-check those tax rates and make sure the right deductions are being made. It can be a hassle, to say the least. 

Mistake #5: Not Understanding Exempt and Non-Exempt. 

It’s important to understand the difference between exempt and non-exempt employees when doing payroll. Here’s the difference: 

Non-exempt employees are usually paid hourly and are entitled to overtime pay.

Exempt employees aren’t entitled to overtime pay. To be considered exempt, an employee must meet all three of the following conditions:

1. Either be salaried or have a consistent, unchanging paycheck,
2. Earn over $455 a week or $23,600 a year, and
3. Have an administrative, managerial or professional job position

Making this payroll mistake is a violation of the Fair Labor Standards Act and can lead to a lawsuit. 

Mistake #6: Misclassifying an Independent Contractor as an Employee. 

Misclassifying an independent contractor as an employee might not seem like a big deal since both individuals work for you, but confusing the two can be problematic. You already know that you must withhold taxes for your employees. If you work with any independent contractors, however, this is not something you need to do. Contractors pay self-employment taxes. 

Why Outsource Payroll? 

Keep in mind that payroll mistakes are just human errors that any business owner can potentially make. That being said, certain mistakes can end up costing you — or at least making things more complicated. 

Outsourcing to a company that specializes in payroll can save you time, money, and energy on payroll. Since these companies specialize in payroll, they stay on top of the latest laws, regulations, and tax rates. This can make your life so much less stressful. Outsourcing payroll can be one of the best things you’ll ever do for your business. 

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