It’s no secret that many small biz owners fear payroll. It’s often a meticulous task that has many repercussions, and lots of owners fail to understand the ramifications of making a mistake.
In a healthy company, payroll typically accounts for 20 to 30 percent of your overall expenses, so it’s important to give it enough attention to avoid increasing its cost on your small business.
Learn from small business owners’ past mistakes to strengthen and streamline your payroll management efforts.
What Are The Biggest Payroll Mistakes That Small Biz Owners Make?
- Not completing pre-counselling forms with employees to ensure that payroll is set up correctly for each one
Completing pre-counselling forms with your new hires is critical. It ensures that you accurately set up your employees’ payroll. Most payroll mistakes are made during the on-boarding process, usually from a lack of attention to detail and verification of accuracy.
One of the most important steps of the on-boarding process is completing form I-9, which confirms that your new hire is able to work legally in the United States. If you make a mistake, you could incur a penalty that costs you thousands of dollars.
Make sure that you complete and submit the appropriate government forms with total accuracy.
- Managing payroll by hand
Given the technological age in which we live, it’s incredible that most businesses with 20 or fewer employees are still doing handwritten payroll.
Any task done by hand leaves you susceptible to mistakes. We’re talking human error here! Now account for the fact that payroll has a big impact on your small biz – why would you leave such a critical task to chance?
There are many small biz payroll solutions that streamline your efforts and save you time and money.
- Estimating net pay instead of making an actual calculation
Net pay is the amount your employees receive after you’ve withheld taxes and deductions during a pay period. If you don’t withhold enough from your employees, you will be forced to adjust their paycheck in the future. It goes without saying that your employees aren’t going to be happy about this.
You should be able to determine this exact figure each period. It’s simply a matter of good record keeping (and the use of a suitable payroll solution). If you don’t have time to calculate net pay on your own, simply find a partner to help you.
- Poorly managing your cash
You might be saying, “What does cash flow management have to do with my small business’s payroll?”
Don’t forget: You eventually have to “transfer” these withheld funds to the IRS. You can’t treat this money as cash you can spend. It leads to catastrophic disasters. This is money that was never yours to begin with. It was your employees’, and because of this, the IRS is incredibly harsh with payroll tax penalties.
Put this money aside each pay period to ensure that you have exactly what you need when you have to make this payment to the IRS.
How Do You Avoid These Mistakes?
Many of the nuances of payroll are quite simple and consistent. Once you become familiar with them, they won’t be so daunting. Take the time to learn what you need to do, and be diligent about managing your tasks.
Of course, employment regulations change. The Affordable Care Act and employment discrimination laws are just a couple of recent examples of regulations impacting small business owners. Do your homework and stay up to date on your responsibilities as a small business owner.
Running a small business doesn’t lend itself to having much free time, as you know. Talk to a small business consultant about managing your payroll to both address current issues and help avoid future problems. Realistically, this is your best option to save time and ensure that your payroll is completed correctly. Do your research, and find a partner who’s capable of supporting you and your small business.
Learn to stop fearing payroll and take control of your small business.
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Schedule a 30-minute appointment to speak with a local small business adviser.