You will find many exciting new opportunities when starting your own small business. You’re taking your ideas and your passion into the marketplace, perhaps realizing a lifelong dream or making a lifestyle change. However, some aspects of running a business can take you away from your core focus. Still, they need to be done, and paying your employees is one of the most essential functions for which you are responsible.
Mistakes in running your payroll could cost you time and money, and they could potentially cause trouble with the IRS—the last thing you want. There are common mistakes that should be avoided.
Let’s go over seven of the most important payroll areas of which you need to be aware:
- Accuracy. The first mistake small business owners make with payroll is perhaps the easiest one to avoid. When running a payroll, you need to make sure to verify dates, names, and hours. Going back to correct these kinds of mistakes can be time-consuming and frustrating. If you’re using a payroll service, make sure it allows you to preview your payroll before you give your approval.
- Schedule. Another easy way to avoid a costly payroll mistake is by keeping a close eye on bank holidays. You may have to process payroll a day early to avoid a delay in getting your employees paid.
- Payroll tax calculations. This is where it starts getting complicated. If you’re doing payroll yourself, you’ll need to keep up with tax laws and regulations and cross-check tax deductions with the IRS tax tables to ensure that you’re paying the proper federal, state, and local payroll taxes. If you’re using a payroll service or considering one, consider one that will do all the payroll tax work for you, including deductions, calculations, filing, and payment on your behalf.
- Check date vs. pay period. This can be a tricky distinction, but it’s important to note for tax purposes that the check date, not the pay period, determines when the payroll is reported. When doing tax filings, this can create confusion if you’re not careful to differentiate the two.
- Pre-tax vs. post-tax. 401(k) contributions are probably among the most common pre-tax deductions from gross wages. If your employees have other accounts like a Roth IRA, you need to understand the difference in how taxes are paid so as not to raise red flags with the IRS. Consult with the IRS, your accountant, or your payroll provider for help.
- Terminated employees. Employers sometimes forget when an employee worked for them. However, you still need to complete a W-2 for employees that were terminated during the year.
- Tax correspondence. If you’re working with a payroll provider, you must remember to send it any correspondence you receive from tax agencies. If you’re doing payroll yourself, take special care to read what the tax agencies send you and make any changes necessary.
It’s a good idea to consider how comfortable you are with running payroll for your business. As your business grows, it might be something that’s not worth the time, effort, and potential for costly mistakes. In the meantime, keep these seven tips in mind so you can get off to a good start.
Michael Alter is president and CEO of SurePayroll, a wholly owned subsidiary of Paychex. SurePayroll provides payroll services for small businesses.
[amazon_link asins=’0609809954,1542618886,B00HRYBYRU’ template=’ProductCarousel’ store=’thinkglink-20′ marketplace=’US’ link_id=’affdf3ee-418d-11e8-bb42-012d78998848′]