Small business owners often strive to save money by doing payroll themselves. However, taking on payroll services yourself can lead to many potential pitfalls. Small business payroll is time-consuming and highly complex. As many payroll providers like check write payroll can attest, keeping up with the time-consuming and highly complex shifting payroll laws and tax regulations is hard enough. Now try doing that in a self-service manner for payroll processing while trying to run your business. The many risks that come with taking on payroll services yourself can lead to discrepancies that lead to violations and fines with the state or federal government and will be damaging to your company.
Common Payroll Mistakes
Whether it is a dedicated employee or the owner of the company, those who handle payroll are on their own to face the myriad of risks and educate themselves each year on the rules and regulations for taxes and payroll services. Here are the top payroll service mistakes that you should avoid.
1 Filing Payroll Taxes Late:
The IRS sets the guidelines for depositing payroll taxes. Failing to file these on time could bring a 15% failure-to-deposit penalty. A late payroll tax return will incur fines too. Those fines could be for each partial or total month that your return is not filed in the form of 0.5% penalty based on your unpaid tax bill.
2 Errors on Your Tax Form
Mistakes on your tax forms may cause you to remit to much or too little in payroll taxes. Mistakes also impact your W-2 and the ability to reconcile with year-end taxes. Before you submit your taxes, make sure the amounts that are entered are correct and verify everything with a financial report. In many cases, it is best to just hire an account(s) or one of the local payroll companies to take care of everything for you.
3 Submitting Incorrect Amounts
The IRS can penalize you for submitting the wrong amount of payroll tax. However, the IRS may forgive the first-time mistake or for errors that are honest mistakes and not trying to take advantage of the system. These mistakes in payroll can lead from a 2% to 10% penalty of the payroll. They start accruing the due date of your payroll taxes.
4 Misclassifying Employees
Your workers can be categorized as independent contractors. Misclassifying employees as independent contractors will result in unpaid payroll taxes. Make sure that a contractor is truly an independent business that you are hiring to do work for you. They give you a quote and perform the agreed-upon work at their own facility. Employees must fill out a W-4 form so that you can deduct the appropriate taxes. As an employer, you are responsible for workers’ compensation, employee benefits, and payroll solution(s) so employees get paid in a timely manner.
5 Getting Employee Details Wrong
When processing payroll, inaccurate or outdated employee information may cause trouble with the IRS. Make sure that you have the right data. This is normally done through hr services in your company. If you don’t have an HR department, it might have an additional cost to your company, but it will save you in penalties with the Internal Revenue Service.
- Full names
- Employee start/termination dates
- Tax file numbers
- Dates of birth
- Current address
- Payroll details, including hourly wages, gross wages, and employment periods
Hidden Cost of Performing Payroll Services Yourself
Your time as a business owner is very valuable and taking on tasks that you are not an expert in may cost you more money than you realize. A survey by the NSBA (National Small Business Association) examined the time spent doing in-house payroll each month. The results showed that small business owners using a payroll software spend:
- 27% spent one to two hours
- 20% spent three to five hours
- 14% spent 6-10 hours
- 9% spent more than eleven hours
Most small businesses in the United States spend $1,000 to $5,000 annually to do their payroll. More than a third of companies spend more than $5,000 a year or more. There are more pitfalls that come with performing the payroll services yourself.
It may be time to find a payroll service provider in your area. The best payroll service(s) help to fulfill your unique needs in payroll and bookkeeping services. each pay period will fluctuate depending on the number of employees and the needs of your employees. Your business needs will change over time too. You may need additional services from your payroll provider like finding health benefits for your employees. This will add to the base fee of your bookkeeping and payroll services for your company.
How to Choose The Right Payroll Service For Your Company
Payroll Conversion Timetable
When you are deciding to implement a new payroll solution, consider the mid-year conversion. At the end of quarter 2 is a good time to start a new payroll process. Another option is to convert to a new system at the end of the year. The company you use should have a system that takes into account the ease of use for you and your employees. They will access your hr needs for payroll and offer phone support, and mobile device usage for your employees.
When you are looking for a new system and payroll services provider, make sure they have online access, pay stubs, handle your
workers’ compensation insurance deduction, and have how-to guides on how to use the new system. They should be experts in being able to convert data from your old system over to the new system for your payroll. You should be able to see greater flexibility, reduced payroll errors, elimination of duplicate data entry, decreased labor costs, and increased visibility into company trends and metrics.
Payroll Tax Compliance Management
with payroll tax compliance rules constantly changing for small business owners, it is crucial to utilize a payroll service provider with a tax compliance department or at least be educated and proficient in tax compliance. Once the conversion to a new payroll system is complete, they should update your payroll tax tables each year.
What To Consider
Consider hiring payroll providers who assign a dedicated account manager to your company. Your account manager and trainer should create a training plan to meet your company’s unique deployment needs. They should have good pricing, a mobile app for you and your employees, be able to share files that are ready for tax filing and do it all with a little gusto. They should also be available on a day to day basis to answer common questions.