The 3 Most Common Payroll Mistakes Small Businesses Make

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Is your business at risk of making major payroll mistakes? Read on to see if that’s the case, and learn how to avoid common blunders. [[{“value”:”

Running a small business is no easy feat. Not only do you have to oversee all operations, but in the absence of the right help, you may also find yourself tasked with potentially tricky tasks, like payroll.

Unfortunately, payroll may be more complex than you imagined. Here are three common payroll mistakes small businesses tend to make.

1. Classifying employees incorrectly

Are all of your employees W-2 employees, or are some independent contractors? It’s really important to know.

W-2 employees may be entitled to certain benefits that contractors are not. At the same time, you may be able to impose certain rules on W-2 employees that you can’t rightfully impose on independent contractors.

If employee classification isn’t your area of expertise, it could pay to hire a human resources manager to help make those determinations. As an example, generally, with an employee, you have the right to dictate what their hours are and where they can work. You may not have the same rights with a contractor, so these are important details to know.

2. Miscalculating pay

Paying your employees may be a complicated endeavor. Not only do you have to account for the right deductions and tax withholding, but you also need to factor in bonuses and overtime.

The right payroll software can be instrumental in helping you navigate these complexities. But it could also be a good idea to hire an accounting professional to manage your payroll so you don’t have to stress over the many small but significant details involved in paying your staff.

3. Failing to send out tax forms in a timely manner

If you’ve ever been a salaried employee yourself, you may have memories of submitting tax returns along with a W-2 summarizing your annual wages. As a small business owner, it’s on you to make sure W-2 forms are given out in a timely manner.

Not only might you create a hardship for your employees by being late with W-2s, but you also risk potential fines. For the 2023 tax year, for example, the penalty for not supplying W-2 forms by the Jan. 31 deadline was $60 or more per late form.

But it’s not just W-2s to worry about. If you use independent contractors, you’ll need to create 1099 forms summarizing their pay as well.

A good software program can help remind you of deadlines and make it easier to generate the forms you need. But once again, this is a situation where outsourcing payroll to a professional could make a lot of sense. When you’re running a business, you’ve got a lot on your plate, so let that person be the one tasked with getting forms out in a timely fashion.

Delving into the world of payroll could mean getting in over your head. Now that these blunders are on your radar, you may be in a better position to avoid them. But it also pays to seek help as appropriate to avoid payroll-related headaches and focus on what you do best — overseeing a business.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More