Posted on by Greg Sloan

5 Small Business Payroll Mistakes and How to Avoid Them

As a small business owner or manager, you have to do everything you can to keep your business running smoothly here in Virginia. There’s little room for error, which is why you have to be incredibly careful when handling something as sensitive as payroll. That’s why we put together a list of some of the most common payroll mistakes made in small businesses for you to watch out for and quick tips on how to avoid making them.

1. Miscalculating Pay

This may seem simple, but there are quite a few reasons as to why a mistake could occur while calculating payment. Incorrect or sloppy data entry are two big causes of this. All it takes is sloppy writing or a damaged timesheet for you to miscalculate a payment.

Another common issue is a mathematical mistake. This can occur while adding the numbers together or when rounding numbers. These mistakes are quite simple, but can end up costing a business time and money if legal troubles arise.

Overtime is a common factor in this. All non-exempt employees must be paid at least 1.5 times their standard rate for all overtime hours worked, according to the Fair Labor Standards Act, laid out by the Department of Labor, which covers all Virginia businesses. This can be an incredibly costly mistake, as failure to pay can result in fees that will run you twice as much as the back wages that are due.

How to Avoid This Payroll Mistake:

This is all about organization. Avoid physical, paper timesheets which can be damaged and make it too easy for employees to put in incorrect information during data entry. Using a GPS timeclock is the best solution. This makes input simple and allows you to transfer data directly to your payroll software.

2. Missing Payroll Deadlines

This has a couple of meanings. One is payroll deadlines. Almost every state, including Virginia, has laws in place to dictate pay frequency. The only ones that don’t are Alabama, Florida, and North Carolina. Some states require you to at least pay monthly, while others require you to biweekly or even weekly. A number of these states have extra regulations on this. It can be easy for small business owners and managers to be unaware of the ins-and-outs of these laws.

How to Avoid This Payroll Mistake:

Keeping up with all of this by yourself is nearly impossible. As a small business owner or manager, your job is already incredibly involved, adding this can just be too much. Instead, it is smart to trust the experts and utilize a local, Virginia payroll service provider that has experts on their staff to understand these laws and regulations and monitor any changes. Be sure to automate your payroll using a payroll software that you trust.

3. Tax Mistakes

Along with missing deadlines, calculating taxes is a situation that draws out a lot of mistakes. Handling taxes is a huge burden for small businesses. Administration for taxes alone costs over $1000 for 63% of small businesses, according to the National Small Business Administration. This huge price of administration speaks to how complicated taxes are for small businesses, that can’t afford to have anyone on staff who is dedicated to this. Many small business owners struggle to keep up with all of the taxes that come with running a company.

It is also common to struggle with tax deadlines. Between local, state, and federal laws, and even international laws depending on the type of business, there is a lot to keep up with in terms of paying taxes. There are hefty fees waiting for those who make mistakes on tax deadlines.

How to Avoid This Payroll Mistake:

While you may not be able to afford a permanent staff member that can handle taxes, you can outsource the task. Some payroll software providers also offer payroll services, which means they will handle taxes for you and keep up with deadlines.

4. Misclassifying Workers

It may seem simple to classify workers. Some are employees and some are contractors, right? Sadly, it’s not that simple. This misconception leads to common mistakes. There are 5 different types of employees:

  • Common-Law Employees
  • Independent Contractors
  • Statutory Employees
  • Statutory Non-Employees
  • Temporary Workers

Employees and contractors have different rules and protections that come along with each of them, but it can be incredibly difficult to determine which is which. It gets even more difficult when you have to determine who is a statutory employee, which is an independent contractor who qualifies as an employee, and who is a statutory non-employee, which is an employee who qualifies as an independent contractor.

How to Avoid This Payroll Mistake:

The IRS put out a 20-Factor Test to help determine whether a worker is an employee or independent contractor. It should be noted that, while this will point you in the right direction, it is not final and you should pursue an IRS ruling in the case of any doubt.

5. Using the Wrong Payroll Software

One of the most common payroll mistakes is choosing a payroll software provider that isn’t right for you. Just because a payroll company is the biggest doesn’t mean they’re the best. This is especially for small businesses here in the Commonwealth, that tend to get ignored by these huge payroll service providers after they sign up for their software.

By getting a payroll system that isn’t tailored to you, you risk more and more payroll errors. This is due to the fact that the software itself may not be what you need and also the service providers may not work with you to keep your smaller business running smoothly.

How to Avoid This Payroll Mistake:

The truth is, all of these payroll mistakes can be prevented by using the right software. Look for a payroll software company that:

  • Offers their services alongside their software and will work with you every step of the way.
  • Is tailored to the type of business that you are. As a small business you should work with a payroll service provider who aims to help small businesses.
  • Has experience. Those who have worked with companies for over a decade have the expertise to handle everything you need.
  • Is Virginia-based and knows the state rules and regulations well.

These are just a few of the top things to look for in a payroll software company. We encourage you to do in-depth research so that you can make a more educated decision on who you want to work with.

Final Thoughts

These mistakes are all very serious. Payroll is a highly regulated aspect of a business. By making a mistake, you open yourself up to heavy fines. If you want to simplify the payroll process and avoid mistakes you have to trust a payroll service provider that will work alongside you.