6 Common Errors with Payroll to Avoid for Small Businesses


Errors with payroll can be costly. But they are not just a problem for you, the employer, they are also an issue for your employees too. 

Payroll is a crucial part of your business operations, and it is vital that you get it right. When it comes to setting up payroll, you should create a fool-proof system that always runs smoothly, without any hitches. 

But what are the common errors with a payroll that you should avoid in your small business? 

In this article, we’ll examine the top six mistakes that you should avoid making.

1. Paying the Wrong Amount 

This may seem obvious; however, it is amazing how often this happens. You need to be sure that you are always paying your employees the correct amount. Overpayments will cost your business, while underpayments are bad for your employees.

Double-check every payment to ensure you are always paying the right amount.

2. Missing Deadlines 

Avoiding late payments is essential. Your employees will be reliant on the income they receive from you, and when you don’t keep to your weekly payment schedule, it may mean that they are not able to pay their bills on time. 

In turn, late payments could lead to your employees receiving fines for their late payments.

3. Misclassifying Employees

Do you know the difference between employees and contractors? It is not uncommon for small businesses to hire independent contractors if the work they’re doing is temporary. 

Designating between employee and contractor is not a personal choice for the company; it is a legal classification. However, if you were to misclassify an employee as an independent contractor, there will be retroactive payroll taxes to be paid.

4. Not Paying Payroll Taxes

You must remember to pay your payroll taxes. Forgetting to pay your tax bill could be costly with hefty fines being levied against businesses that delay payiing their payroll-related taxes. 

You may have a mixture of federal, state, or local taxes to pay. Make sure you know what is owed and when it is due.

5. Not Keeping Records

Managing financial records is a must. If you fail to keep accurate payroll records, then it may trigger an audit.

Typically, the type of information that you should be keeping will include copies of every check stub, W-2 forms, and timesheets. This may differ from state-to-state; however, you will usually be required to hold this information for four years.

6. Mishandling Deductions 

There are plenty of reasons why an employee may have money deducted from their wages. For example, if they owe money by way of a court order, or are paying child support, then it may mean that you need to make deductions and send them to the appropriate recipient. 

This money must be sent directly when required. Mishandling these deductions could result in fines. 

Avoiding Errors With Payroll 

Avoiding errors with payroll will save you time and money; it will also help you retain employees. Correctly managed payroll should be a given in any business. Make sure that you don’t set yourself up for payroll failure by having the right systems and checks in place.  For more great articles, be sure and check out the rest of the blog.