Payroll Mistakes Every Business Must Avoid


Starting a company comes with many challenges. One of the most common challenges new businesses faces is dealing with their payroll. Payroll mistakes are becoming pretty standard among new business owners who think that it is nothing more than just paying their employees on time. Business owners with employees must take care of payroll-related tasks from paying an employee’s salary to filling out payroll tax reports. As such, it is essential for business owners to be aware of the most common payroll mistakes. Here are some of them:

Misclassification of Workers

According to the IRS, business owners must classify their employees appropriately because it will affect their payroll reports. Is the worker a regular employee or an independent contractor? Misclassifying your workers can cause you a lot of trouble. As such, it is important for you, as a business owner, to understand the difference between an employee and a contractor. If you misclassify your workers, you not only cause trouble for your business but also for your workers. For instance, if you classify an employee as exempt when they should not be; the employee would not be entitled to any overtime wages.

Missing Out on Payroll Schedules

Failing to have a payroll calendar in place can cause you to miss out on payment deadlines. Failing to file a tax return can cause you to shoulder hefty fines and surcharges, an added expense that can hurt your business. Make sure that you do not forget to process your payroll on the specified dates. Doing so can cause you to delay paychecks and mess up your payroll records. Delayed paychecks are not good for the business as they can cause your employees to lose their focus and feel demoralized, which will ultimately affect the company.

Absence of Record Keeping Systems

Without a record-keeping system, business owners are prone to make inconsistent payments, make errors in inputting Social Security numbers, forget hours worked, and fail to come up with reports to present to government agencies when an audit comes. The absence of record-keeping can break your bottom line and affect the efficiency of your business.

Overtime Pay Mistakes

Paying overtime wages should not be taken lightly. The federal government has already included federal overtime provisions in the Fair Work agreement, which every business owner must be aware of. Those who fail to pay the correct overtime wages can pay hefty fines later on, particularly when federal agencies start getting suspicious and request an audit of their records.

ALSO READ  How to Calculate and Increase Customer Value

Do-It-Yourself Payroll Method

Most startup business owners would continuously find ways how they can save money. As a result, they would often choose to resort to a do-it-yourself payroll. But little do they know that this can only cause so much trouble for them later on. How? Without proper knowledge of the local, state, and federal mandates, they are prone to making mistakes. Payroll mistakes can cause the business to suffer when employees start to feel that they are being deprived and choose to start exercising their rights.

Failure to Send Out Tax Reports

Failure to send out tax reports to the right people can be problematic, not only for employees but for business owners as well. Often, federal agencies give a grace period, but beyond that, a business owner must pay interest charges and penalties.

Poor Bookkeeping Practices

Not all business owners are adept with numbers. In fact, most fail at making accurate entries in their books of accounts, and some don’t even know that they have to integrate their payroll into their books and how this can impact their operations.

Key Takeaways

Some of the payroll mistakes mentioned can quickly be addressed. Others can be time-consuming and costly for business owners. Business owners need to understand that while simple mistakes are forgivable, others are not, especially the ones that have to do with federal agencies. It can be costly and, when not immediately addressed, can cause the business to go under.

Given these things, business owners can significantly benefit from taking advantage of payroll outsourcing services since these services already have a standardized platform and experts that can help them avoid payroll mistakes at all costs. With a payroll system in place, it would be easier for business owners to do a quick check to see if they have made the correct deductions, have accurate employee information, and see whether the company has enough budget to pay the employees and keep the business running.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.