Payroll challenges can cause various problems for small and medium-sized businesses, but using effective payroll management techniques can help your business stay compliant. Streamlining payroll processes and engaging in fiscal year payroll planning is important. Using payroll software for SMBs is another way to avoid common payroll pitfalls.
Here's what you need to know about common payroll mistakes and compliance with payroll regulations in 2024.
1. Record-Keeping Inaccuracies & Retention
Record-keeping inaccuracies are common because people make errors. Unfortunately, errors in timekeeping and leave accruals can result in incorrect payments, leading to compliance issues. It's important to maintain accurate data when you're keeping records for your business.
Retaining employee records for up to seven years is recommended to comply with various regulations:
- Department of Labor Requirements:
- 2-Year Retention:
- Timecards
- Piece work tickets
- Wage rate tables
- Work and time schedules
- Records of wage additions or deductions
- 3-Year Retention:
- Payroll records
- Collective bargaining agreements
- Sales and purchase records
- 2-Year Retention:
- IRS Regulations:
- 4-Year Retention: Employee tax records, including:
- Personal information (EIN, name, address, SSN, occupation, employment dates).
- Forms 940, 941, and 1099.
- Records of wages, annuities, pensions, tips, fair market value of in-kind wages, sickness or injury payments.
- Income tax withholding certificates (Forms W-4 and variants).
- Tax deposit dates and amounts, copies of filed returns and confirmation numbers, fringe benefits, and expense reimbursements.
- 4-Year Retention: Employee tax records, including:
This comprehensive approach ensures compliance with various legal requirements for maintaining employee payroll and tax records. Working with record-keeping and payroll software can help with this.
2. Worker Misclassification
Misclassification of workers is one of the most common errors that businesses make when working with employees and independent contractors. The difference between independent contractors and employees is significant. Independent contractors have general autonomy, while employees work under the employer's direct control. However, these distinctions aren't always clear in real-life worker situations, and misclassification is common.
The distinction is important because employees have protections like workers' compensation, minimum wage requirements, and overtime pay. An employee who is misclassified as an independent contractor may come back with legal disputes in the event that they are discovered to be an employee.
Following state and federal regulations on this issue is critical. Working with experts can help your business identify which workers are independent contractors and which workers are employees.
3. Late Filings
Tax filings must be made on time. When they are not, late submissions and inaccuracies can result in penalties and interest charges, creating a financial burden for businesses. Working with a payroll software company that keeps accurate records and makes reporting easy is important for ensuring that your business will remain compliant.
It's also important to mark your calendar every year and maintain a plan to help you file on time. When changes occur, it's important to know about them. Follow the letters and notices from your local and state tax authorities. Check on their websites for updates on tax law and important deadlines.
4. Failure to Follow Changes to Payroll Legislation
Changes to payroll legislation that affect your business can happen any time there is a legislative session. Staying well-informed about these changes can help your business. When these changes occur, it's important to become fully educated on how those changes will impact your business.
Your local tax authority will most likely publish information and even hold webinars and other training sessions to help small businesses. Stay abreast and watch these changes carefully to ensure your business complies.
5. Local Tax Regulation Non-Compliance
While many businesses are only required to stay up to date with state and federal tax laws, some businesses must follow their city tax laws as well. Knowing all the tax laws that affect your business is vitally important for staying in compliance. Your payroll software may have built-in features that help you stay in compliance with these regulations.
It's also important to educate yourself personally on the state and local tax codes for your area. While you should have a reliable payroll software company to help you, deepening your own understanding can only help.
6. Security Breaches
Cyber attacks can impact businesses when their data is hacked, and their employee information is published on the dark web. A security breach can jeopardize confidential employee information and lead to identity theft, which can dramatically affect employees for years. While big companies can invest millions in keeping their employee data secure, smaller companies must rely on the security of their payroll software provider and other services they utilize.
Your business is responsible to your employees, and is likely bound by local regulation to keep your data secure. Stay current on the measures you must take to ensure that your employee data is secure, and only work with a reputable payroll company that will protect your employee information.
7. Calculation Errors
Computers and automation may have changed how we handle payroll, but manual calculations continue to be utilized in various processes at organizations of all kinds. Errors that result from manual calculations can have consequences that lead to serious problems, but these errors can be largely avoided by using more computerized processes and smart payroll software.
Improve Your Compliance With Modern Payroll Software Services
The use of modern payroll software and services like those offered by Workforce PayHub can streamline the payroll process and prevent errors. For help with payroll services, contact Workforce PayHub. We can provide you with a personalized consultation on your payroll needs.
