All Taxable Income You Receive Including Wages Salaries And Tips Baker’s Dozen of Common Payroll Mistakes

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Baker’s Dozen of Common Payroll Mistakes

Everyone makes mistakes, but many mistakes are made in payroll. Below is a list of the 13 most common mistakes I’ve seen and compiled them into one list. I hope you find them useful and help you improve your personal payroll system for your business!

First, don’t back up your system. Since the person handling the payroll is probably a human being, you can bet they can’t work every day. Make sure you have some tools in place to run your payroll software without them. You should also have a manual means of recording payroll in the event of a technological failure.

Second, not issuing 1099s. When hiring a vendor or independent contractor, keep in mind that if you paid them more than $600 for their services, they must file a 1099. Anyone who fails to submit this form will be severely penalized as it is an integral part of your foreign employment and tax records.

Next, Employee Misclassification. Making sure your employees are classified correctly is not just about keeping good tax records, but different types of employees are subject to different pay and/or benefit packages. Make sure you follow all state and federal laws regarding how your employees are classified and structured in your business.

Improperly defined independent contract workers is another mistake. Designating all of your workers as independent contractors is not a good way to avoid paying them. Employment status is also closely monitored by the IRS, and mislabeling employees is a good way to avoid an audit and can have a significant impact on your employee’s income tax and withholding.

Choice of exempt or non-exempt. Exempt employees are not required to accrue overtime. Simply placing an employee on a payroll does not exempt them from overtime. The classification of employee status requires you to be familiar with federal and state laws and may be different for different jobs.

Travel and attendance expenses for employees are excluded. As a general rule, accrued travel and travel expenses are not taxable income of the subordinate. If this employee is traveling to a place of work outside of his permanent residence, he must be granted travel and commuting benefits.

Miscalculation of unemployment for state duty is a very common mistake. Delaying or miscalculating your state’s unemployment tax can cost your business the unemployment tax credit, which can be as high as 5.4%. If you are not notified of unemployment benefits, you can file a lawsuit.

Improper recording of overtime can be fatal. There are state and federal regulations regarding overtime pay. It is not limited to 1.5 times the employee’s hourly wages and may calculate even more to be precise.

Protecting employees’ wages from fraudsters. Technology has helped large and small businesses become self-sufficient and have more advanced tools for their operations. The same technology is also used to trick you in some cases. Check fraud is a very real phenomenon and you should make sure your business is protected with watermarks or any other security paper methods. Because of this, more and more businesses pay their employees through direct deposit, which completely bypasses the paper method of fraud.

Mismanagement of employee wage arrears can be crippling. It is very important to stop any type of garnishment, tax garnishment, child support or court ordered garnishment. Be sure to confirm with the issuing state that you have correctly withdrawn the employee’s check.

Absent or unsatisfactory records and data collection is disastrous for your business. Accounting errors account for almost 2% of total payroll costs. The Internal Revenue Service requires you to keep at least four years of records, and some states require additional archiving.

Do not forget about not correctly recording taxable objects. Federal tax laws require you to account for bonuses and fringe benefits withholding of income and employment taxes. Gift cards are considered cash and should never be deducted from taxable wages.

And finally, not meeting tax schedules: Depending on how late a company is in filing their taxes, they may be subject to late filing penalties and interest rates. Depending on the delay in tax payments, the range can vary from 2% to 20%.

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