Payroll processing is highly regulated by local, state, and federal governments. All businesses must comply with several laws and regulations or face penalties.
Dealing with payroll compliance issues is one reason many businesses today outsource their payroll administration. Payroll outsourcing can ensure that your business complies with all employment laws and regulations.
Non-Compliance is Costly
When it comes to payroll, companies cannot afford to be non-compliant. For example, the penalty for violating overtime or minimum pay requirements is $1,000 for each violation, plus back pay. Missing federal payment deadlines for withholding tax can cost up to 25% of the amount due, plus interest. And not complying with health insurance reimbursement regulations can cost a business up to $100 per employee per day.
As you can see, overlooking even simple payroll-related transactions can be staggering.
4 Common Payroll Compliance Mistakes
What kinds of payroll compliance mistakes do companies tend to make? Here are four common errors that you want to avoid.
1. Making Payments Outside of Payroll
One of the most common payroll mistakes is to make payments to employees outside of the payroll process. Payments to employees – including commissions and bonuses – need to go through the payroll system because they are considered taxable wages. Any payments not reported as such are subject to penalties for late tax payments. A quality payroll processing firm can catch these mistakes before they become serious issues.
2. Missing Filing or Payment Deadlines
Missing deadlines is another common problem for many small and medium-sized businesses. A company will incur penalties for both filing late and not making tax payments on time.
Making prompt tax filings and payments isn’t as easy as it seems. If your company has more than a handful of employees, you might have dozens of different state and federal tax filings and payments to make throughout the year. Keeping up with all these is challenging for most companies, but it’s something that a payroll administration service can simplify for businesses.
3. Misclassifying Employees as Contractors
Companies shifting formerly full-time employees to independent contractor status has become a major issue. The problem is that some contractors should be classified as employees, and thus subject to standard employee benefits and tax withholding. The line between W2 employee and 1099 contractor is a murky one that employers often have trouble navigating. Most payroll processing firms are more familiar with this situation and can give expert advice before any potential audit.
4. Not Keeping Accurate Records
Most companies find it a chore to keep HR and payroll records for every employee. Unfortunately, if your employee records are not accurate and up to date, you could be subject to penalties under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and other state and federal regulations. It may simply be easier to outsource this record-keeping to a firm offering payroll administration services.
Contact CBR to Ensure Payroll Processing Compliance
To make sure your company satisfies all local, state, and federal payroll regulations, contact Creative Business Resources, a leading PEO/ASO. We’ve been providing payroll administration services to SMBs (small and medium businesses) since 1997 and will work with you to best serve your company’s payroll needs.
Contact CBR today to learn more about our payroll processing and HR services.