5 common payroll mistakes small businesses should avoid

Payroll can be complicated, especially if you’re managing your own payroll as part of your business. For small businesses, common payroll mistakes include not keeping track of all hours worked, misclassifying employees as independent contractors, and failing to pay taxes and benefits.

If you’re a small business owner managing your own payroll, here are some common mistakes to avoid with payroll tax compliance and why these mistakes happen.

1) Misunderstanding tax rules

Larger companies usually hire professionals to handle their payroll tax obligations, but that doesn’t mean that you won’t need to pay attention. Payroll taxes are still your responsibility even if you outsource your payroll services, so it’s important to understand what you owe and when.

Additionally, it’s important not to make any mistakes on timesheets or timesheets (or other employee records) since those errors could lead to fines or fees later on. To learn more about avoiding these types of problems—and staying in compliance with state and federal regulations—check out our guide to paying employees correctly for more information.

2) Using manual payroll process

If you’re a small business owner and you use a manual process to pay your employees, it’s time to streamline that. Having a robust payroll software can be an absolute lifesaver for SMBs – especially if you run multiple sites or have seasonal employees.

The headaches of manual processes far outweigh those of automated systems (which are often free), but they can still save money and administrative headache as well as help ensure compliance with federal and state employment laws. Even if you work with 10 people or less, implementing automatic payments can make life easier for everyone.

3) Failing to pay employees on time

While paying employees late doesn’t seem like a big deal, it can cause problems in both professional and personal relationships. Imagine getting paid only one week out of every month. You’d struggle to pay your bills and make it to work on time—and you wouldn’t be able to enjoy your weekends with family and friends as much as you’d like.

Small business owners who fail to pay employees on time risk losing dedicated staff members as well as facing financial penalties (fines, interest charges) from service providers (banks, leasing companies). As an employer, it’s important that you set a good example by paying your people properly and on time.

4) Disorganized employee records

Many people will use separate spreadsheets or physical folders to organize their employee information. If you need to go back and look at one of your employees, it can take a while because you have to sort through all of these different records.

Instead, invest in a cloud-based human resource management system that allows you to easily pull up each employee’s record. It will speed up your bookkeeping, reduce errors, and ultimately save you time so that you can spend more of it on growing your business.

5) Not knowing the tax obligations and deadlines

Make sure you understand all of your tax obligations and make payments to your state and federal governments in a timely manner. Missing out on withholding tax deadlines can cost you in late fees and penalties, not to mention lower your credit score.

Also, if you need to pay an employee who works more than one job, make sure you comply with wage-withholding rules for government agencies at both jobs. If you get audited, get a penalty notice from one agency, but don’t take action because it’s related to another agency’s requirements—you could be liable for fines from both agencies if their information doesn’t match up.

You’ve gotten advice from experts. You’ve gotten pointers from peers. But you know what? The best business advice anyone can give you is right here, in your own brain. We all have different reasons for becoming entrepreneurs—and that means there are plenty of ways to create success. Maybe yours is to grow into a large, multi-billion dollar company with thousands of employees and dozens of offices around the world.

Sanjit Dhabekar

Sanjit Dhabekar is a passionate Digital Marketer and Blogger. He loves to explore new opportunities to rank websites and earn money online.

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