How to Avoid the Most Common Payroll Mistakes Small Businesses make ?

Written By Sakcham Tiwari

July 22, 2021
Payroll mistakes happen every day and especially by small businesses due to their lack of a proper payroll management system. In this article, we will discuss some of the most common payroll mistakes and how they can be avoided.
payroll mistakes

Small business owners and managers often have their hands full with loads of tasks. And so, it is not uncommon for them to make mistakes while processing payroll. 

To an outsider, it may seem like an easy task but those who have ever worked on payroll processing know that it is not at all easy. 

Errors in payroll processing can lead to dire consequences. These consequences can include paying hefty fines and penalties, losing the trust of employees, and the reputation of the firm getting severely damaged. Therefore, avoiding payroll mistakes is absolutely essential for all small businesses. 

Let’s discuss the most common mistakes that small businesses make when it comes to payroll processing:

  1. Delay in payroll processing or not paying at all

Due to busy schedules or other problems in professional or personal lives, payroll processing can be delayed. So, delay in payroll processing means that the employees will not be paid their compensation on time. This can be incredibly frustrating for the employees and they might lose their trust in the company’s management. 

It is not uncommon for businesses to completely forget to pay an employee or two. They might not be properly registered on the company’s records or their name gets overlooked or gets deleted somehow – any of these scenarios can lead to the employee not getting paid at all. This should be avoided at all costs as in such cases, the employee will not only be tempted to resign but the company’s reputation will also be tarnished among other employees and in the industry. 

  1. Improper Payroll set-up

If the payroll set-up is not up to mark, it can lead to numerous payroll mistakes. So, to avoid payroll mistakes, one should first check whether the payroll set-up has all the required aspects or not. A proper payroll setup must incorporate taxes, reimbursements, and employee classifications. 

On occasions where the business is not registered, legal and statutory compliances are not considered properly, and employees are not classified correctly, the payroll is bound to be filled with errors. Moreover, penalties are also very likely to be levied by the tax authorities. 

  1. Not paying payroll taxes

The local, state and central governments all have various laws regarding taxes. Not all taxes are going to apply to your business. You need to check which ones do and when you are ready, you need to pay them timely. 

However, plenty of businesses fail to pay taxes at the right time each year. Many of them are accused of tax fraud and have to pay huge amounts of penalties to the government. 

Therefore, in order to avoid that, taxes need to be properly understood by small businesses. It is extremely important to figure out what taxes you need to pay and what you need to deduct from the payroll of your employees. This will ensure proper compliance to statutory requirements and help you to avoid payroll mistakes.

Contributions Deductions in Payroll 01 1
  1. Incorrect Payment

This is a payroll error that is extremely common among firms. that is, to pay the incorrect amount to their staff. Overpayments and underpayments are an issue everywhere in the world and even the top companies have made such mistakes.

Such situations damage the reputation of the company and it also loses trust and respect from its employees. Not to mention, it takes extra time and energy to resolve these issues and so, you get sidetracked from the important business tasks. Therefore, this error must be avoided at all costs. 

  1. Improper Records

If the records of your staff are not accurate, there are bound to be errors in payroll processing. Their bank account details, stipend details, tax information, statutory requirements, everything must be properly recorded so that payroll processing is accurate and smooth. In addition to this, make sure that payments and bonuses are also tracked properly. Salary slips of each employee must be kept safe because they can come in handy in future. 

Small businesses must record all these details because it can help them steer clear of penalties when there is an inspection by tax authorities or any other government body. 

  1. Wrong employee classification

Companies may classify their employees incorrectly and this leads to incorrect payroll processing and payments. This happens more often than you’d think. Many companies hire independent contractors and gig workers apart from full-time employees. Many times, the firms mix up their employees belonging to different classifications. 

This should not be taken lightly. Based on the employee classification, their salaries get reported to the tax authorities because they are taxed according to that. Moreover, governments have different laws and liable taxes for different types of employees. 

Therefore, whenever a new employee is hired, it’s important to double-check their classification and see if it’s correctly entered in all records or not. 

  1. Overtime payments not paid

When you do not pay your employees for overtime, it is likely that they will get upset with you and may lose respect for you and the company. But apart from this, it is also illegal to not pay your employees for overtime. According to the guidelines set by the government in the form of labour laws, each employee must be paid for overtime. You will be fined by the authorities if you do not follow this. 

  1. Not keeping track of changing labour laws and tax regulations

Sometimes you do everything right like accurately processing payroll and paying the correct salary to every employee. Still, you get fined by the government and end up paying a large amount of money in the form of a penalty. Why does this happen?

Because you were not up to date with the government rules and regulations relating to payroll and tax. You thought you were doing everything right but you didn’t know about the updated laws. So, you ended up not adhering to the laws properly and thus, made things worse for the company. The company will not only have to pay hefty fines but its image will also be tarnished. 

That is why it is of utmost importance to keep track of the laws set by the local, state and central government regarding payroll and taxes. 

How Workex will help you avoid payroll mistakes

We covered a lot of common payroll mistakes that small businesses usually commit. Reading all these might have caused you a lot of stress. It is normal to stress about this but there is actually a way in which you can sit back and not worry at all about making these mistakes. 

What is the way you ask?

Workex

Automated-payroll-processing

Written by Sakcham Tiwari

Hi! I am a content writer and editor with a master's degree in Digital Publishing from Oxford Brookes University. I have worked for a myriad of websites, blogs, and digital magazines. When I am not writing/editing articles and content for clients, I am either immersed in books, or scribbling poems, watching Netflix, or just scrolling through Twitter.

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