It is one of the more mundane tasks for any small businesses, but suffice to say managing payroll is one of the most important as well. Of course, this is only going to apply if you have a workforce onboard, but judging by the audience of this article we will assume that this is the case.
In short, managing payroll is one of those processes that can give any business owner a real headache. This is one of the reasons why the payroll industry has exploded over the last few years, with several pieces of software delving into payroll services for small business now being available.
Regardless of whether you tap into the software approach or not, we have today listed some of the biggest mistakes that small businesses make in relation to this topic.
Mistake #1 – The difference between worker classifications
In today’s day and age, particularly with the rise of the gig economy, no two “workers” are the same. Sure, you might have some full-time employees, but at the same time you might also have some contractors who seemingly also work on a full-time basis.
Classifying them for payroll reasons is a different ball game though. For example, there are far less tax considerations in relation to a contractor and they are more or less responsible for managing all of this. In other words, make sure that you know which category all of your workers fit into, so you are not paying more tax than you really should be.
Mistake #2 – The perils of overtime
To say that overtime is a tricky beast to tame would be an understatement. There are ways and means of paying overtime, and it’s not just a case of paying the same manner as what you do with regular wages. In fact, get this issue wrong and you won’t just have to pay back more wages, but there are probably penalty fees and interest on top of that.
Official guidelines state that employees need to be paid 1.5 times more for overtime work. Overtime is classed as anyone who is working beyond the 40 hours per week mark.
Mistake #3 – Not keeping tabs on current tax rates
Unfortunately, just to throw more complexities into the equation, tax rates change by the year. What might be the correct figure one year, isn’t necessarily going to be the same the following.
To put some of this into perspective, the sort of rates you need to check include federal income tax, social security tax, state income tax and local income tax to name a few.
Mistake #4 – Payroll is not a priority
Finally, this is the mistake that a lot of business owners risk running into if they are not careful. A lot of the time, at least in comparison to other elements of running a business, payroll isn’t regarded as a priority. This means that it’s often filed late, and this has obvious repercussions on employees. Trust suddenly disintegrates and before you know it, you are left as that company that nobody wants to work for.
