Smart Business spoke to Mark Strippy, Executive Director, Payroll Services, Heartland Payment Systems, about how businesses can avoid the expense and headaches of common payroll mistakes.
Payroll is likely one of the biggest expenses your business incurs — and one that can cause the most headaches. Whether you have one employee or hundreds, you have a legal obligation to pay your employees accurately and on time. While that’s intuitive, there are many other not-so-obvious legal payroll requirements that may not be.
These 10 tips will help you avoid some common payroll mistakes.
1. Note important payroll deadlines
Report and deposit your payroll taxes to federal, state and local agencies on time. Late deposits can result in penalties and interest charges.
2. Classify employees appropriately
Classify your employees into the appropriate categories such as temporary employees, consultants and other independent contractors to ensure payroll reporting for tax purposes is accurate.
3. Report and calculate overtime pay
Here’s where the proper classification of “exempt” and “non-exempt” employees is really important because it can be costly. According to the Department of Labor, litigation claiming non-exempt employees who were treated as “exempt” employees and, therefore, not entitled to overtime — but should have been — continues to increase.
4. Distribute 1099 forms on time
Give your independent contractors who earn more than $600/year a 1099 form by January 31 of the following year. This will help you meet your filing deadline and avoid late penalties — $15 for every 1099 form that is 30 days late, $30 for every form filed by August 1 and $50 for all 1099 forms filed after August 1.
5. Double-check data entries
Data entry mistakes — including incorrect hourly wages and the wrong number of employee hours per pay period — cost companies millions of dollars annually. In addition to potentially increasing expenses if workers are paid for hours they didn’t work or at a higher hourly rate than they should be, this can result in government penalties. Be sure to double-check your entries for accuracy.
6. Send court-ordered payments to the proper recipient
If you don’t follow court-ordered garnishments such as levies or child support, you may be prosecuted and could be fined up to $1,000 — or even imprisoned.
7. Don’t rely solely on your software program
Be sure to enter all of the necessary payroll data. Your payroll program is only as good as your input. It can’t perform accurate calculations without all of the necessary information.
8. Save payroll records
Keep time sheets, cancelled checks and W-4 forms — in a safe and accessible location — for four to six years. Failure to do so could lead to criminal penalties and/or civil actions.
The Wage and Hour Division of the Department of Labor must be able to inspect your records within 72 hours of notifying you.
9. Maintain payroll confidentiality
Keep your payroll information within the payroll department and the senior management team. Failure to do so could lead to criminal penalties and/or civil actions by disgruntled employees.
10. Train more than one employee in payroll functions
Have more than one employee trained to do payroll in case the employee who is primarily responsible is out of the office. The IRS, the state and employees need to receive payments on time. Also, have a manual backup system in case a computer fails.
Following these tips can help you foster and maintain employee satisfaction — as well as prevent headaches with federal, state and local agencies. You can also avoid payroll mistakes by outsourcing. If you’re considering outsourcing, turn to Heartland. We’ll take away your payroll processing worries so you can focus on operating, improving and growing your business.
Heartland Payment Systems, Inc. (NYSE: HPY), the 5th largest payments processor in the United States, delivers credit/debit/prepaid card processing, payroll, check management and payments solutions to more than 250,000 business locations nationwide. Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. For more information, please visit HeartlandPaymentSystems.com, MerchantBillOfRights.com, CostOfABurger.com and E3Secure.com.