Taking a hard look at your payroll processes can be hugely beneficial to your business. Every successful business could benefit from professional payroll services. Agile BSA presents the following ways established companies and new businesses alike still make mistakes when it comes to payroll — and ways to take advantage of having a professional at the helm of your payroll operations:
Mistake 1: Misclassifying employees
Misclassifying your employees can lead to difficulties for them in getting the benefits they need and are entitled to by law. It can also negatively impact your payroll processes come tax season. This can also be considered a violation of the Fair Labor Standards Act (FLSA), so take great care to avoid incorrectly classifying those who work for your business.
Mistake 2: Missing federal deposit deadlines
Payroll tax deposits are due by the 15th of the month after you paid your employees. For example, if your employees are paid in January, the tax for whatever you paid them will be due February 15. Don’t miss these deadlines!
Take note: The federal tax refund schedule is also an important resource to know so that your employees can be sure when they can expect a refund from the government after you have provided their appropriate tax forms.
Mistake 3: Keeping incomplete or sloppy pay records
The FLSA requires companies to keep employee records for at least three years and resources like pay stubs and tax documents for a minimum of four years. All of this data should include hours worked, how much you are paying people per hour or per product, and the dates you paid them. Having incomplete or sloppy records can result in hefty fines down the road, so it’s important to use employee timesheets connected to time tracking software that captures this data for you and includes smart reporting so that you have access to accurate records.
Mistake 4: Making freelance and contractor payroll errors
If you are employing the services of freelancers or independent contractors, you need to make sure you take the right administrative steps and send the appropriate 1099 forms. The IRS has recently adjusted the 1099 designations, which you should familiarize yourself with:
1099-NEC: “NEC” is short for “non-employee compensation,” which means that if you had freelancers or contractors who don’t count as employees for your business (i.e., you don’t offer them benefits or take out income taxes from their checks), this is what you will need to file. The 1099-NEC also encompasses payments to attorneys.
1099-MISC: This comprises miscellaneous payments of more than $600. In the past, this is what a freelancer or contractor would file. However, for 2020, the IRS has changed these restrictions so that those folks will be filing a 1099-NEC.
The IRS will levy fees to employers who don’t file these forms appropriately, so make sure you pay attention to what you’re filing and when. If you’re using a full-service payroll software, you can quickly and easily file 1099 online forms in as few as three steps, which makes the entire process easier — no waiting for the mail to run or going to the post office.
Hire a professional today
If any of these errors sound familiar — and even if they don’t — you should consider employing the services of a professional payroll expert. You will have more faith in your operations and can rest easier at night knowing payroll mistakes won’t be made.