When small businesses decide to run payroll in house, they often overlook several of the payroll processing challenges. There are several payroll mistakes that can be made while processing payroll. Here are just a few of them that are easy to make.
1. Employee vs. Independent Contractor. This is a mistake that is made very often because sometimes it is hard to determine how someone should be classified. There are many rules to determine whether someone should be an employee or an independent contractor. There are 3 Common Law Rules: Behavioral, Financial and Type of Relationship. When you are deciding how to classifying there are differences that you need to know.
2. Forgetting to issue 1099’s. The end of the year is a busy time for most businesses and it is easy to overlook some year end reports, especially 1099’s. Most people are concerned with making sure that they get W-2’s out on time and can forget about the 1099 forms that have to go out to all your independent contractors. If your business fails to submit a Form 1099 in a timely manner, you can be subject to penalties.
3. Forgetting to Make Your Tax Deposits on time. This is a common mistake people make because they do not know the rules of tax deposits. Tax deposit filing status can change during the year based on the amount of taxes to be paid each pay period. Generally, a company is required to deposit taxes on a monthly or semi-monthly basis. When taxes reach up to a particular amount, they must be deposited the next business day. Some of the penalties for late payments can range from 2-15 percent. Refer to the IRS for more detailed information regarding payments.
When processing payroll in house, many business owners don’t think of all the difficulties that goes along with it. Partner with someone that you know can get the job done on time and accurate. It will be worth it after you get that first penalty notice that could be thousands of dollars.