The 8 Mistakes You’re Making with Your Payroll
Businesses are often faced with challenges that require them to change how they do things, but if your payroll system isn’t working well it can be easy to forget about it until there’s an issue. It’s important to take the time to analyze your payroll setup and make sure it’s working optimally so you can avoid costly mistakes or legal issues down the road.
1) Not Filing W2
It’s a common mistake to forget to fill out a W2 at year-end. That being said, you must file a W2 for each employee by January 31st of each year. Get in touch with your payroll processor if you have any questions regarding how to fill out or file your employees’ forms. They should also be able to help you avoid any penalties that may result from not filing on time. If you can’t seem to figure it out on your own, get in touch with their support staff and they will either walk you through it over the phone or send instructions via email; whichever option works best for them and for you.
2) Not Setting Up Payroll From the Start
If you’re a small business owner, starting your payroll from scratch can be an intimidating process. If you have a limited number of employees, it may seem simpler to just leave payroll out of your business plan altogether. Resist that urge. Setting up automated payroll from day one is a good idea for three reasons: it simplifies future tax filings, offers greater convenience for both employees and employers, and ensures consistency in how wages are reported to government agencies.
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3) Not Telling Employees About Their Tax Obligations
Many employees have tax obligations but aren’t aware of them. This is especially true if your business makes use of a payroll service, which you should consider if you have a lot of employees or complex payroll issues. If your company is responsible for withholding taxes from an employee’s check and then forwarding that money to Uncle Sam on their behalf, it’s important to let your workers know what they owe—and when they need to cough up that cash.
4) Failing to Set up Self-Service Reporting Tools
One of the greatest tools available to today’s small business owners is self-service reporting. It allows you to go into your back-office system and generate reports instantly based on what you’re looking for, rather than having to submit a request through an accountant. Plus, it frees up more time for them so they can spend more time on other tasks that need their attention.
5) Ignoring Voluntary FICA Payments
Many small business owners mistakenly think that they can save money by doing their own payroll, and while some claim to do so, we’re not convinced. In fact, many don’t even know that they can make voluntary FICA payments for things like social security and Medicare. By voluntarily making these payments upfront on a regular basis, you’ll end up saving quite a bit of money when you go to pay your taxes at year-end. We recommend contacting an accountant or tax preparer in your area to help you figure out if it makes sense for your company.
6) Forgetting To Deduct State Taxes from Salaried Employee Checks
According to new rules set by Obamacare, any employees who receive a W-2 form at year’s end will be required to pay state and federal income taxes. However, many business owners aren’t familiar with withholding state taxes on salaried employees. If you fail to deduct these taxes, your employee could get hit with an unexpected tax bill that is double what they should owe. The good news is that adjusting your payroll system is simple; all you need to do is add some lines of code to your program.
7)Not using automated payroll software
Sure, you could pay your employees manually. But, if you’re making more than a handful of transactions each week (or month), it will quickly become overwhelming to handle payroll by hand. Do yourself a favor and automate your payroll processes. Many small businesses make common mistakes when establishing their company’s payroll process; here are ten of them: If your small business is growing quickly or you have multiple locations, consider using automated payroll software to free up time that can be better spent on other business priorities. An automated solution allows you to focus on serving customers instead of worrying about tedious manual processes in HR management. However, not all solutions are created equal, so do some research to find one that meets your needs in terms of cost and features before making any decisions.
8) Neglecting Year-End Documentation
Make sure you have all year-end reports and documentation completed in a timely manner. This includes your 941 and W2’s. If you don’t do it correctly you can face costly penalties and fees. Hire a payroll service if it isn’t something you enjoy doing or understand completely. This way your records are filed correctly and professionally, saving you time and money in tax season.