A good payroll system keeps employees and the IRS happy. But fast company growth can quickly overwhelm a payroll team.
Missing too many filing deadlines results in hefty fines for your organization when left unchecked. Here are 5 mistakes in payroll you should watch out for to avoid penalties.
1. Not Sending 1099s
Independent contractors are entitled to receive 1099s before the start of each tax season. For most entities, the filing deadline is January 31st each year.
A common point of confusion is whether or not a freelancer earned enough to warrant sending a 1099. The cut amount is subject to change but is currently set at $600.
Any contractors who earn over $600 with your organization needs a 1099.
2. Data Entry Mistakes
Another one of the big mistakes in payroll is incorrect social security and name matches. These data entry mistakes might be due to poor handwriting or simply having too many numbers to look at at once.
Take your time to go over and verify all the information you receive from new employees. The social security administration offers a hotline to help you match correct social security numbers with the appropriate name.
Use this free tool to avoid having to dig through several years’ worth of records to correct a mistake down the road.
3. Mishandling Court Orders
Employee wage garnishments can be tricky. Since a court order is involved, you can’t simply make changes to the garnishment amounts easily once you make a mistake.
If there are a high number of child support, levies or other garnishments among your employees, consider using payroll services that scan your documents for potential entry mistakes. The result is a more professional record keeping system in the event the court requests information later.
4. Late Filing
Payroll departments have to set reminders and back up reminders to avoid filing paperwork late. Late filing is one of the mistakes in payroll that can lead to major financial consequences.
You might be behind on payroll paperwork, but once you start filing late, you add to your list receiving and responding to notices from state agencies. Procrastination in payroll always adds more to your plate.
Set up a system or service that auto files for you if you aren’t able to keep up with manually submitting quarterly payroll taxes.
5. Miscalculating Overtime
When employees classify themselves as ‘exempt,’ they might not be entitled to overtime pay. This might not be your mistake but it’s a mistake that could lead to legal trouble for the company.
Double-check each employee’s start-paperwork to make sure it all reads as expected. Talk to the employee to make sure they understand the implications of the selections on the form.
Overtime miscalculation many employees are willing to overlook.
Fixing Mistakes in Payroll
Some mistakes in payroll take only minutes to fix while others can open up exposure to lawsuits. Create a daily routine of checks and balances to reduce the number of errors in your payroll department.
While you won’t reach perfection, you’ll have a system in place that allows you to easily recall information that might need revision. For more information and tips, check our blog for updates.