The amount to be paid to an employee from the company or authority is called payroll. Payroll is a complicated procedure as it involves formal methods of paying taxes, filling out government – mandated forms and covering the financial needs of each employee (compensation, etc). Studies and stats show that about 40% of businesses sustain a huge amount in IRS (Indian Revenue Service) penalties.
Below are the Five Most Common Payroll Mistakes businesses make;
1. Incorrect Information & Vague Understanding of Concepts
The methods adopted in setting up of payroll system plays a significant role in the functioning and progress of the whole idea. There are various factors which are taken into consideration in order to analyze the situation. From the registration of the business to setting up a federal, each minute action is taken into account. It is important that you are familiar with all the laws and have knowledge of how much to withhold for federal and state income taxes.
2. Recording Paper Checks
Make sure that you don’t end up neglecting the procedural methods of running a payroll. For instance, in busy times, a company might end up not giving a manual check to an employee (bonus & paydays) and also forget to record the check in the record sheets. This can leave your books off balance and the tax deposits of the company in disarray and chaos as the IRS & the state will still expect to receive the payments on time. It is also important that you have a proper and an efficient back up of your payroll documents.
3. Disrupted Schedule of Payments
The schedule of your payments to the employees has a significant impact on the operations of the company, cash flow and the working of each employee. Law describes a “minimum pay period” , where you can always choose to pay more frequently but not lesser than average. Each pay schedule, however, has its own advantages as well as disadvantages. It is important that you’re thorough with the state’s Wages & Hour regulations for a better understanding & the righteous solution.
Analyzing the consequences on the basis of the size of your business is sheer stupidity. For instance, in a small business, it is absurd to believe that it is too small to adhere to with all the rules. Delay of payments and failure whilst processing payroll system can cause you to pay heavy taxes, dissatisfy employees and lead to an occurrence of government penalties and most importantly, shatters the trust & morale towards the company.
5. W-2 Form
The W-2 tax form shows the exact amount of taxes withheld from pay check for the year & is also used to file the federal and state taxes in the right manner. It helps an employee prepare for proper tax return. It is a type of tax form that suffers from the most common hub of errors but holds a lot of importance. Each employee is to be provided with this form by January 31st of any given year. A blunder in filling out the details on this form can result in the employee’s benefit records like one at the Social Security Administration and may reduce his/her benefits in the future. It can also cost you to pay a heavy fine.
Henceforth, it is important that you understand how the Payroll System functions and avoid making mistakes that can cost you the trust of your employees and loss of great potential with hefty financial penalties as well. if you have a doubt or need further clarity on the Most Common Payroll Mistakes businesses make , feel free to write to us at firstname.lastname@example.org or you can connect here.