Want to improve your bottom line? Did you know you can make that happen without improving your sales or subscriptions? All you need to do is reduce your mistakes.
Arguably the easiest mistakes to avoid are payroll mistakes. That’s fortunate because they directly affect your business’s profitability. When you’re ready to discover where you’re going wrong with payroll, so you can reduce your costs and increase your bottom line, read on.
Late Employment Taxes
Did you know that you might need to pay up to 25% more if you fail to pay your taxes on time? Late penalties range from 0.5% to 25%. Charges occur starting 10 days after the IRS issues you a final notice.
The simplest way to avoid paying those penalties is to either outsource payroll or keep a calendar with your business tax due dates highlighted. If you run a weekly payroll, that means by Wednesday; if it’s monthly, it’s by the 15th.
Only one exception gives you the leeway of filing late without penalties. It occurs only when you’ve recently changed the frequency of your deposits.
Improperly Classifying Contractors or Employees
Improper classification may cost you a bundle on your next professional payroll. Here are some of the highlights:
- 100% of unpaid overtime when misclassifying employee as exempt
- 1.5% of wages, plus fines when misclassifying employee as an independent contractor
- Up to 20% of wages when intentionally misclassifying an employee
If you have any questions while you’re processing payroll, stop. Check with your lawyer or with IRS.gov before you send in your payroll. If you still aren’t sure, consider outsourcing payroll to a payroll services company.
To avoid this problem, know the IRS’s definition of employee and independent contractor. Also learn the difference between exempt and non-exempt employees and overtime.
Inaccurate and Incomplete Records
Yep, even if you’ve gone the automated payroll route, you still might be in for fines. Or worse yet, you might be facing the dreaded audit. You can count on it if you’re keeping inaccurate or incomplete records.
Small fees, such as filing late W-2s, may only cost you between $50 to $100. Failing to provide 1099s to your subcontractors will cost you $250. Prices go up from there.
To avoid these extra charges, check your records for new employees each week. At that time, double-check things like addresses for your current employees, W-2s, and timesheets.
Another Note on Record Keeping
You should keep your business records for at least seven years. The IRS can audit your business for up to seven years after a tax season. For instance, if the IRS can audit you in 2028 for the taxes you turned in this year.
If you keep physical records, be sure to store them in a logical sequence. Make sure your storage space is dry with low humidity and devoid of insects.
What’s Comes After Payroll Mistakes?
Now that you know the most common payroll mistakes to avoid, it’s time to get to work. Double-check your definitions with the IRS and create a payroll calendar marked with important dates. Then schedule a time each week to work on your payroll.
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