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8 common payroll problems to avoid


Payroll is much more than just paying your employees their salary or hours worked.

When it comes to payroll, it encompasses not only wages but deductions such as taxes and social security as well as health insurance and more.

Payroll can be difficult for some startups, so today we look at eight common payroll problems to avoid. 

#1: Setting it up incorrectly

Payroll is complicated, especially where taxes are concerned.

Not only are taxes a vital part of payroll, but they are difficult to understand, and are subject to change.

If you're handling payroll on your own, you want to make sure you're up to speed on all of your employee withholding so you withhold the right amount of taxes from your employees' paychecks.

You can check online for federal, state and local information, or you can outsource your payroll to a company to handle for you. 

#2: Being late with payroll

Small business owners are busy, and they wear many hats.

That's why it's very common for business owners to forget payday. This isn't good for your reputation or your team.

It's a good idea to consider hiring someone or outsourcing your payroll so you don't forget. When you do this, you can concentrate on the day-to-day activities with running your business and let someone else handle the payroll. 

#3: Missing tax payments

This is another common problem, and one you want to avoid.

Your tax deposits are due at different times during the year – usually monthly.

If you miss these deadlines, the fine can be stiff.

Not only do late payments incur penalties, but they can incur interest as well. 

#4: Poor record-keeping

Payroll needs to be integrated with your overall accounting system if you're managing it yourself.

Why? Payroll directly affects your cash flow. It's imperative you know how much money you have on hand so you can cover your payroll checks. 

#5: Paying the wrong amount

 You really don't want to be caught paying the wrong amount – either too much or too little.

This usually happens due to a clerical error, and sometimes it happens if your employees make a mistake.

You want to have a payroll system in place that has checks and balances. Double check payroll amounts as well as tax withholding amounts. Do it each payroll period so you don't end up with a mess later on.

#6: Missing bank holidays

This is a very common problem with startups.

You don't want to miss bank holidays, because if you do, your employees will suffer.

For example, if payday falls on a Friday, and that day is a bank holiday, you want to make arrangements to pay your staff the day before.

Remember that bank holidays aren't considered business days when it comes to processing your payroll. Always be aware of bank closings so you can adjust your payroll processing time. 

#7: Mis-classification of employees

Many startups employ part-time and hourly workers, full-time salary workers, freelance contractors, or temporary and seasonal employees.

Knowing who to pay what and which employees to withhold taxes from is tricky.

Avoid fees and penalties by getting up to speed on the classification of employees. 

#8: Incorrect overtime amounts

Another common problem is missing the overtime.

You are required to pay overtime for certain employee classifications.

Sometimes calculating these amounts causes problems for employers and employees.

A payroll professional can help you navigate the sticky subject of overtime hours. 

Final thoughts

With United States' businesses incurring more than four billion dollars in penalties due to payroll errors, it is clear how important it is to avoid these common payroll problems.

As you can see, payroll is a burden for startups, and the best way to avoid payroll trouble is to either hire someone experienced in payroll management, or to outsource your payroll needs to experts which will help you stay on track. 

Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.

Image: NeONBRAND on Unsplash 

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