Is it difficult to do payroll?
Learning to manage a payroll is never the favorite thing to do for any business owner. But it is a necessary evil if they want their company to survive.
When a business starts up, with only a few employees, it may make sense to handle payroll internally. But as the business grows and the business owner has more and more on their plate, managing payroll could take their attention away from other important tasks. Then it may make sense to hire out payroll management to a third-party accounting firm with proven expertise in the area, such as Shockley Bookkeeping and Tax Services
Without this help, here are some risks businesses run:
Misclassifying Employees
When you set a payroll budget, you not only need to set pay grades for each position but you must ensure you properly classify your employees. There are three main classifications: salaried workers, hourly employees and independent contractors.
An hourly employee misclassified as an independent contractor can result in missed overtime or pay that is less than minimum wage – mistakes that could wind up being expensive for you. You could find yourself owing the IRA back taxes, including unemployment taxes.
Withholding the Wrong Amount of Taxes
Taxes are one of the most complicated things about handling payroll. Often businesses are responsible for withholding taxes on behalf of employees. Some taxes are mandatory, some are voluntary, and there are lots of chances to make costly mistakes.
You need to keep straight both how much you must pay in taxes and what amount you must withhold from employee paychecks. While misclassifying employees (see above) is one common way for small businesses to miscalculate their withholding amounts, there are other common mistakes. These include failing to withhold federal and state taxes, making incorrect deductions from salaries, incorrectly calculating pre-tax and post-tax deductions, failing to exclude taxable fringe benefits such as gifts and bonuses, and the list goes on.
Data-Entry Mistakes
From recording employee hours from time cards to inputting information such as Social Security numbers, there are plenty of opportunities to input wrong information that will cause payroll chaos. A professional firm handling payroll has the experience in inputting and double-checking information to ensure mistakes are kept to a minimum.
Problems Calculating Overtime
Many businesses calculate overtime every two weeks but this needs to be done weekly. Any worker who labors more than 40 hours a week must receive a rate not less than 1.5 times their regular pay.
The Depart of Labor recently made changes to the overtime rule, which could affect your employee overtime, making some previously exempt workers non-exempt. Keeping on top of these kinds of changing rules is difficult if payroll and accounting are not your full focus.
Doing your own payroll can take a lot of your valuable time in a workday. Hiring out your bookkeeping to Shockley Books, can be cheaper than you think and will give you peace of mind, knowing that your payroll will be taken care of accurately, with no miscalculations as far as taxes, insurance and other deductions.
Here’s a look at the top 4 difficulties experienced when processing payroll:
1. Setting up Employees Correctly
Setting up your workforce correctly, with attention to staff duties and functions are very important to your payroll. As a business, you have options for how to hire employees. You can hire contractors, freelancers and even temporary workers depending on your needs.Classifying employee incorrectly can cause serious problems when it comes to paying employees’ taxes.
2. Calculating the Proper Deductions
Taking the time to calculate and process deductions from employee compensation can be challenging. This is an issue for nearly all businesses because taxes can differ among regions and employees.
3.Utilizing Direct Deposit
After taxes have been deducted from earnings, your decision about how to deposit funds is important. There are several complex rules and policies guiding each form of deposit and they all depend on your business’ tax obligations. Although using direct deposit has its own requirements, payroll automation is considered to be cost-effective and efficient. This is especially true when it comes to unraveling errors or solving payroll related difficulties.
4. Calculating Time ticket entries
The process of entering employee time tickets requires serious attention to detail. Any incorrect entry of time data through manual payroll systems could taint the overall record. Trying to locate the mistake would not only amount to a waste of time and resources but would also add unnecessary stress.
Common Payroll Problems to Avoid
Payroll is much more than just paying your employees their salary or hours worked.
When it comes to payroll, it encompasses not only wages but deductions such as taxes and social security as well as health insurance and more.
Payroll can be difficult for some startups, so today we look at five common payroll problems to avoid.
#1: Setting it Up Incorrectly
Payroll is complicated, especially where taxes are concerned. Not only are taxes a vital part of payroll, but they are difficult to understand, and are subject to change. If you’re handling payroll on your own, you want to make sure you’re up to speed on all of your employee withholding so you withhold the right amount of taxes from your employees’ paychecks. You can check online for federal, state and local information, or you can outsource your payroll to a company to handle for you.
#2: Being Late with Payroll
Small business owners are busy, and they wear many hats. That’s why it’s very common for business owners to forget payday. This isn’t good for your reputation or your team. It’s a good idea to consider hiring someone or outsourcing your payroll so you don’t forget. When you do this, you can concentrate on the day-to-day activities with running your business and let someone else handle the payroll.
#3: Missing Tax Payments
This is another common problem, and one you want to avoid. Your tax deposits are due at different times during the year – usually monthly. If you miss these deadlines, the fine can be stiff. Not only do late payments incur penalties, but they can incur interest as well.
#4: Poor Record-keeping
Payroll needs to be integrated with your overall accounting system if you’re managing it yourself. Why? Payroll directly affects your cash flow. It’s imperative you know how much money you have on hand so you can cover your payroll checks.
#5: Paying the Wrong Amount
You really don’t want to be caught paying the wrong amount – either too much or too little. This usually happens due to a clerical error, and sometimes it happens if your employees make a mistake. You want to have a payroll system in place that has checks and balances. Double check payroll amounts as well as tax withholding amounts. Do it each payroll period so you don’t end up with a mess later on.
Learn how to do payroll
Learning how to do your own payroll can be very daunting. There’s so much that can go wrong and if you make a mistake, it not only affects you, but the well-being of your employees and you can risk getting penalized by the IRS. You have a huge responsibility, and it’s making sure the money is getting allocated accordingly.
Once you take the time to learn payroll, everything will fall into place. Start with the following basics:
- Collect all tax account numbers, including federal EIN (FEIN) and state identification number, if it is different.
- Research the rates for all applicable taxes prior to paying employees. Get familiar with federal income tax, federal unemployment tax, Social Security tax, and Medicare tax. Some employers also need to know about state income tax, state unemployment tax, and local income tax.
- Learn the frequency of depositing each payroll tax including which forms to use and where to send them.
- Understand the minimum wage and overtime laws for your state, as there could be different requirements, some more rigid than others.
- Learn the IRS recordkeeping requirements for payroll taxes and other employment documents.
- Verify payroll deductions for fringe benefits and wage garnishments and know how to apply them.
- Establish a free Electronic Federal Tax Payment System (EFTPS) account so you can make electronic federal tax payments. Your state might also have a similar electronic tax payment system.
The Importance of Payroll to Small Business in 2020
Small business owners where multiple hats while running their company and 2020 is no different. Those hats include payroll, human resources, management, and sales just to name a few. Completing payroll is easily one of the most critical duties a small owner must do to run a successful business. Employees must be able to count on getting their wages on pay day with zero interruptions. Payroll impacts all components of a small business from the confidence about the company employees to the solvency of the company.
Employee Confidence
Employee confidence is tied directly to timely payroll. Large businesses are not as transparent about their financial stability as small businesses. Employees in small businesses are closer to most working aspects of the business they work for including sales, billing, collections, human resources, and payroll. In a small business if payroll is not paid on time or if payroll checks start bouncing at the bank, employees will naturally become concerned about the financial stability of the company. Employees will begin to back away from performing their job duties on time or effectively if they see they are not getting paid for work performed. For employee confidence in a business to stay positive, payroll must be paid on time.
Employee Compensation
A critical component of payroll is that gives each employee direct satisfaction about their value to a small business. Payroll demonstrates and documents each employee’s complete compensation. Employee compensation in payroll includes company paid benefits, commissions, insurances, and salary. At most companies, each employee monthly, quarterly, semi-annually, or annually, complete a performance review with the owner, their manage or their department supervisor. If an employee is doing well and meeting or exceeding their agreed job goals, they may be given an increase in salary or an annual bonus, and some instances, both are rewarded. Employee benefits also demonstrate employee’s value to the business. Small businesses that pay employee benefits like health insurance, life insurance and stocks, show to employees directly how much they mean to the company.
Payroll is a Time-Consuming Task
Small business owners spend a considerable amount of time doing payroll. Payroll has to be completed on time weekly, every two weeks or two times a month. Payroll must be 100% accurate. By law, employees are required to be paid the exact amount due to them for the time they provide their labor. Tax withholdings, insurances, and other payroll deductions all must be the correct amount and must be paid on time. To make sure payroll is paid on time and done 100% accurately and to free up a considerable amount of time, small business owners should consider outsourcing payroll.
Timely State and Federal Tax Payments
Payroll must be done correctly for business to keep in compliance with state and federal tax obligations. Penalties for not paying payroll taxes on time are significant. Employees must complete their W-4 withhold forms and it is the responsibility of small business owner to make certain of it. Employee personal taxes withholding is determined by how W-4 withholding forms are completed. Additionally, small business owner must be sure they are withholding and sending the correct amount of FICA taxes monthly and annually from payroll. Legislation can and does get enacted annually that impacts FICA amounts for withholding. It is the employers; responsibility to make sure they are complying when it comes to withholding payroll taxes. Again, this is a perfect example of why it makes sense to outsource payroll processing. Hiring a payroll processing company, like the Payroll Company, is the perfect solution to handle your small business’ payroll in 2020,
