Top 3 Payroll Mistakes Made By Business Owners (Without an Accountant)
Running a business is challenging no matter how you slice it. From creating a viable business plan, devising a marketing strategy, hiring reliable employees, and maintaining relationships with customers, there is no easy part of the process.
For many small business owners, payroll is a particularly cumbersome task. This is a tedious job and it’s easy to make errors that can impact both your business and your employees. Here, we take a look at the top three payroll mistakes that tend to be made by business owners who don’t have an accountant.
1. Misclassifying workers
The difference between W-2 employees and 1099 is defined by the IRS but it can still be confusing, particularly for new business owners. One of the major discrepancies between these two types of workers is that taxes are not withheld from contractors’ paychecks.
If you accidentally misclassify an employee as a contractor, there could be tax ramifications for both you and the individual down the road. You could even find yourself facing legally action, all because you didn’t fully understand worker classification categories!
The best way to make sure you are fully compliant with IRS regulations is to work with a local accounting firm that offers reputable payroll services.
2. Not keeping proper records
The Fair Labor Standards Act (FLSA) went into effect in July 2009. It lays out a variety of requirements for employers, including what types of records must be maintained for payroll purposes.
If you fail to keep proper records, you could find yourself in trouble with the IRS. Federally, employers must keep three years’ worth of pay records, including hours worked, rates of pay for each worker, and the date of every payroll. Additionally, many states have their own record-keeping rules that extend beyond three years, and may include additional documents.
A qualified payroll expert will know precisely what your state’s standards are in regard to record retention.
3. Failure to report all taxable compensation
It is important for employers to keep in mind that the IRS taxes more than just employee salaries. Many fringe benefits including stock options, travel rewards for reaching goals, and employee discounts are subject to both federal income tax and employment tax withholding.
If you fail to report all forms of taxable compensation you gave to your employees over the course of a tax year, you could find yourself paying costly penalties.
Remember, the best way to avoid small business payroll problems is to find an accounting firm in your area that offers full-sevice payroll packages.
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