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Costly Payroll Errors You Can Avoid by Hiring a Payroll Service Provider

Payroll errors can cost your business in the form of time lost, employee discontent, penalties, and litigation fees. But with a payroll service provider, numerous mistakes can be avoided:

Missed Deadlines

Late deposits can cost you in terms of penalties and interest charges. A payroll service will keep your payroll calendar and tax payment schedule updated to ensure your tax payments are made on time on your behalf.

Confidentiality Breaches

Payroll must be handled in a secure environment at all times, and no payroll information should be disclosed to anyone outside of the payroll department or the senior management team. Ensure that your payroll software includes extra security features such as multifactor authentication (MFA) to prevent unauthorized access and ensure confidentiality.

Miscalculated Overtime Pay

Overtime pay calculation varies by state and employee classification (i.e., hourly and salaried). Overtime pay for hourly employees is generally easy to calculate by conforming to governing overtime rules. However, when the same employee works different jobs for different pay rates, or gets paid a different amount for a different shift (shift differential), blended overtime rules would apply. Blended overtime pay is a department of labor requirement for employees in this category.

Overtime pay for salaried employees can also be tricky. In some states, regulations for overtime and other labor laws exceed those of the federal government. This means compliance with stricter regulations. To be sure, check with either your state’s labor department to review state labor laws, or your employment attorney.

The increasing number of litigations in recent years on claims of misclassification involving employees who were denied overtime pay because they were treated as “exempt” should serve as a deterrent factor when it comes to employee classification. Failure to follow guidelines on calculating overtime pay can bite quite deep into a small business’s budget.

Unsent/Unfiled Forms or Payments

  • Failure to send Form W-2 to all employees
    Companies are required to send a Form W-2 to (1) all their employees after the year ends, to be used for filing individual tax forms, and (2) the Social Security Administration (SSA) for each employee. Filing a Form W-2 for all employees, including seasonal ones or those who separate, even after working as little as one day is required.
  • Failure to send 1099 forms to contractors on time
    Companies often neglect to send 1099 forms to their independent contractors earning $600 or more during a given year, and before January 31 of the following year.
    The IRS fines for late or missing forms, wrong or missing taxpayer information, and not filing electronically within a given time frame, in addition to penalties for errors on the forms.
  • Mishandling of garnishments, levies, or child support
    The payroll manager or whoever is handling payroll is responsible for sending the right amount of court-ordered payment to the appropriate recipient on time.
  • Failure to apply for payroll tax accounts
    Even before a business owner hires their first employee, they should first sign up for all tax accounts that apply to the company. Businesses who neglect to set up proper payroll tax accounts can be fined, subjected to government audits, and will be subjected to dreadful paperwork.

Neglect and Oversight

  • Lack of adequate backup
    This could be in the form of (1) no one taking over if the payroll manager is away or sick, to ensure that timely payments are received by the state and the IRS, and as by the employees, or (2) the absence of a manual payroll if the payroll system is offline.
  • Complacency in the presence of a software program
    Even the most complex programs can only do so much if fed inaccurate or incomplete information. Which is why it’s not a good idea to disregard the old garbage-in, garbage-out theory. The risk for miscalculations is too great.
  • Faulty recordkeeping and data entry
    The Social Security Administration has established a special verification phone number just to address the huge number of mismatched names and Social Security numbers. Numerous data entry mistakes (including inaccurate records of employee hours), can cost companies millions of dollars annually, even more with government penalties added.
  • Failure to save payroll records
    Regardless of variations among states and specific agencies vary, records (including time sheets, cancelled checks, and W-4 forms) are typically held from four to six years.

If your business is facing challenges regarding your payroll and HR management, perhaps it’s time to upgrade to a payroll service that is automated and accurate. Payroll Systems offers scalable payroll service that match your payroll requirements. And we back our technology up with human support, so you will have a dedicated specialist to talk to.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.