Paying your employees may seem like a straightforward task. More often than not, errors can occur when running your business’s payroll. Because there is a variety of different features that make up a company’s payroll, it is essential that your team has an understanding of how to prevent payroll mistakes from happening.


How Does Business Payroll Work?

The payroll process begins when onboarding an employee. An important factor in the payroll process is how the employee chooses to be taxed. Once the employer is informed of this, and the employee begins to log time-worked, the business will begin to pay the employee on a regular schedule. Once a pay period is completed, withholdings and deductions are taken from each employee’s pay, and paychecks are cut. The record of all the calculations for all employees is called a payroll register. This record shows all amounts of salary and wages for each pay period and totals for the year. If you have a payroll program as part of your business accounting system, the payroll register is part of that system. The totals are fed into the overall financial statements for your business.


Why Are Mistakes in Business Payroll so Common?

Business Payroll mistakes happen on a regular basis. Most commonly, they occur due to the fact that businesses do not have a proper system in place to manage employee payroll. 

Let’s look at 7 Common Business Payroll Mistakes, and solutions to avoid them: 


7 Common Business Payroll Mistakes 

  1. Forgetting Deadlines: It is essential that your business makes a payroll calendar to avoid missing tax payments to federal and state agencies. Late payments can result in business penalties and interest charges.
  2. Poor Record Keeping & Data Entry: If data isn’t entered into a business’s payroll system with accuracy, mistakes are bound to happen. These errors can be expensive, costing businesses hundreds of thousands of dollars.   
  3. Relying Solely on Your Payroll Calculator: Software programs aren’t perfect. Repeatedly, wrong data can be entered into the system, or software glitches can occur. This can lead to incorrect payments. 
  4. Misclassifying Workers: Often, small businesses hire independent contractors as temporary workers for their business. According to federal regulations, these temporary employees should be listed as contractors in the payroll system. When a business misclassifies an employee, it may have to pay retroactive payroll taxes. 
  5. Failing to Stay Up-to-Date on Payroll Laws: Federal regulations on employee payroll is everchanging. If businesses are not staying up-to-date on these tasks, then there is a possibility of business penalties and interest charges. 
  6. Breaking Payroll Confidentiality: Business Payroll Information should not be shared with anyone outside of the payroll department or senior management team. Failure to secure this information can cause business problems. 
  7. Miscalculating Overtime Pay: There are guidelines that must be followed when determining overtime pay and miscalculations can be costly. Litigation has been increasing in recent years claiming that employees who were treated as “exempt” employees and therefore not entitled to overtime were misclassified.


Tips to Avoid Business Payroll Mistakes 

Here are some tips to avoid expensive payroll mistakes: 

  • Use a calendar to manage your businesses payroll due dates
  • When Classifying employees, refer to this IRS definition, “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
  • Schedule employees accordingly to avoid paying overtime 
  • Create an organized system to manage employee W2’s and other records


Final Thoughts

Whether you are just starting your business, or it is already established, investing in continuous improvements of your business’s payroll service is something that will continue to help your business grow. With the extra support that payroll services can offer your business, you have the possibility of  keeping accurate business records that can overall prevent unwanted difficulties for your business. If you are looking to invest in your business’s future, using a payroll service might be the right choice for you.


Limitless Business Payroll Services in Gilbert, Arizona.

Looking for a business payroll service in Gilbert, Arizona? Limitless Investment and Capital offers a variety of skilled experts qualified to assist your business’s needs. Rather than struggling to manage your company’s payroll, focus your efforts on a piece of your business that only you can. Our goal is to provide you true accounting freedom. Interested in a free financial analysis? Contact us today to get started!