— August 15, 2018
Payroll can be confusing and laborious. Because of that, payroll errors can easily spring up. They can creep into your payroll process with little notice.
Payroll involves employees’ wages, governments’ taxes, and employment laws. You must keep an accurate payroll; otherwise, you might face back payments, penalties, and interest.
To maintain an accurate payroll, use the following tips.
1. Classify workers correctly
You must accurately classify your workers as either employees or independent contractors. This classification is not arbitrary and is extremely important.
With employees, you need to collect and pay taxes, pay overtime wages, and follow minimum wage laws. These things are not necessary for independent contractors. Contractors pay their own taxes, don’t earn overtime wages, and they set and negotiate their rates.
To determine if a worker is an employee or contractor, use the three-prong test from the IRS. You will look at behavioral control, financial control, and your relationship with the worker. If you still need help classifying the worker, you can file Form SS-8 with the IRS.
As a note, your state might have additional determination requirements. Check with your state department of labor to find out if there are any other rules you should follow when classifying employees.
If you classify a worker incorrectly, you could owe back wages and taxes, interest, and penalties. You need to have employees in your payroll system. Independent contractors should not be on your payroll.
2. Automate your payroll
If you use a manual payroll system, you can end up with a lot of mistakes. You might punch the wrong number into the calculator, record a number in the wrong spot, or forget to include something in the payroll process.
Automating payroll can reduce the chance of errors. To do this, use an online payroll software. The software will calculate pay and taxes. The software should be accurate, so you don’t have to worry about errors sneaking up on you.
3. Track time and attendance
You need to accurately track how much time your employees work. This is especially true for employees who earn hourly wages and employees who are eligible for overtime wages.
You need a way to track time and attendance. Online software is a good option because employees can log into their account and log their start and end times. Because it’s online, even remote employees can use it.
Time and attendance software can also help you prevent time theft. You can review time cards before you run payroll to make sure they are accurate. You can compare them to work schedules and agreements to verify their validity.
4. Keep up with payroll updates
Payroll is ever changing. Governments are always passing new laws. Tax rates and minimum wages often change annually. You need to dedicate some time to keep up with changes.
You can get information from multiple sources. Check news sources that regularly report on payroll-related changes. You can subscribe to newsletters from government sources and niche blogs. Make sure you check your mail for rate notices from your state and local governments. Seek out information from local business organizations.
Sure, keeping up with payroll updates can take a lot of time. But, it’s worth it because you can save time and money in the long run by avoiding errors.
If you use payroll software, the provider should update the software whenever there are changes to standardized tax rates. But, you must still keep up with laws and individual business rates.
5. Conduct payroll audits
You should conduct regular payroll audits to verify that your payroll records are accurate. You might conduct an audit on a quarterly or annual basis.
When you do payroll audits, you make sure that your payroll information is correct. Essentially, you’ll make sure that all the numbers add up and money is going to the right place.
Check employee wages. Make sure they are calculated correctly. Verify that all deductions are withheld at the right time. Check that you calculated your employer taxes correctly.
You should also check that taxes and other deductions are paid to the right parties.
Beyond calculations, you might want to audit employee information, such as names, SSNs, and addresses. This helps you make sure you can file forms correctly, such as Form W-2.