Do you handle payroll on your own? You join about 40% of business owners that choose to take on payroll themselves.
For many business owners, they’re so busy that it’s hard to keep track of everything. That opens the door to make payroll mistakes. These mistakes can get you and your business in big trouble with the IRS and your employees.
You’ll want to know what the payroll mistakes law consists of, so you can prevent mistakes and protect your business.
Read on to learn what the various laws are when you make payroll mistakes and how you can correct them.
1. Missing Payroll Deadlines
Do you like throwing money away? Of course not! That’s what you’re doing when you don’t pay your payroll taxes on time.
When you are late on your payroll taxes by two days, you are assessed a 2% penalty by the IRS. Between 6-15 days, that goes up to 5%. On day 16, that goes up to 10%. That penalty can climb as high as 15%.
They also add interest on top of the penalties, ranging between 3% – 6%. Failure to pay could result in a levy of your bank accounts or a lien on your property.
If the IRS believes that you are deliberately evading taxes, you could be fined or go to jail.
These penalties don’t include additional penalties in your state or municipality. You want to check with your jurisdiction to find out what those penalties are.
2. Underpay an Employee
Millions of employees are underpaid every year. You may not do it deliberately, you may do it because you’re no aware of certain labor laws, like overtime payments.
There could be an issue with your payroll software, or you were just tired when you processed payroll.
Employees have a right to recover wages that weren’t paid in full. Employees could report your business to the Department of Labor, which can order you to pay back wages.
That is an unpleasant process that you want to avoid. There is a statute of limitations around this law. Employees have two years to file a claim for back wages.
You’ll want to work with a payroll services company that understands payroll laws and can limit errors.
3. Classifying Employees as Contractors
This is a big payroll error that the law is very clear about. More people are joining the gig economy to earn extra cash. In many of these jobs, people will work full-time but they’re paid as independent contractors.
They have to abide by the employer’s rules and work according to the employer’s hours. In that case, that person is an employee.
Employers will classify them as contractors so they don’t have to pay benefits or payroll taxes. The IRS has guidelines that you should follow to classify your employees and contractors properly.
If you misclassify a worker, you will be responsible for paying payroll taxes for that employee for the time they worked for you.
Understanding Payroll Mistakes Law
Mistakes happen when you do payroll. You want to limit them as much as possible, but there will be some things that fall through the cracks.
The best thing you can do is to hand off payroll to experts who understand payroll mistakes law and can help you correct past errors and maintain good payroll records moving forward.
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