Miscalculation of Employees & Contractors
One common mistake relates to misclassification of employees and contractors. Small businesses typically work with both employees and independent contractors. Bookkeepers are responsible for classifying employees and contractors separately. A mistake in classifying employees and contractors can result in overpayment or underpayment to the Internal Revenue Service and misfiled tax forms. Additionally, misclassifications muddy a small business’s bookkeeping records, skewing financial reports.
Miscalculation of Exempt & Non-Exempt Employees
Another misclassification error can occur when determining exempt and nonexempt employees. An exempt employee is someone who earns a salary and doesn’t qualify for overtime. A non-exempt employee typically is paid an hourly wage and qualifies for overtime. If a company misclassifies non-exempt employees as exempt, the misclassified employees will not be accurately compensated for the overtime hours they work. As a result, the employer may owe back wages and could face Internal Revenue Service penalties.
To avoid misclassification issues, bookkeepers must define the employment status of people who contribute to the organization. The correct classification enables companies to comply with tax laws and avoid tax penalties.
Mistakes Administering Employee Benefits
Other common mistakes relate to benefit administration. For example, employers must maintain proper payroll records related to the Affordable Care Act. According to the ACA, employers with 50 or more full-time equivalent employees (those who work 30 hours or more per week) must provide health insurance. Payroll managers must diligently monitor changes in employment classifications, so they report accurate information to the IRS about healthcare coverage. Small businesses and their payroll managers should have a keen understanding of timekeeping and health insurance documentation. Health insurance is just one example of a fringe benefit for payroll managers to track.
Errors in IRS Tax Reporting Forms
Mistakes on tax form can be easy to make. Common tax documentation mistakes include having the wrong amounts, names, or addresses listed on the tax forms. The employer’s quarterly federal tax return must match an employee’s W-2 form. When these don’t match, tax refunds may be delayed, and the employer may be liable for IRS penalties. That’s why it’s vital to recheck amounts and information and stay up-to-date on tax law.
Missing IRS Quarterly Payroll Tax Deadlines
A final payroll error to avoid: missing a payroll tax reporting deadline. IRS penalties stack up quickly for employers who file their tax reports late. Employers can face a 2% penalty for 1-5 days late; 5% penalty for 6-15 days late; 10% penalty for 15+ days late; and 15% penalty 10 days after they receive a notice for immediate payment or 10 days after their first notice.
Outsourcing Payroll & Tax Processing
Small businesses can save time and reduce their risk of payroll errors by automating their payroll process. They can improve business efficiency even further by outsourcing their payroll process to a professional. Prosperity Bookkeeping provides a full line of payroll and tax processing services. Of course, cost is a major factor when deciding whether to outsource payroll to a third party. That’s why Prosperity Bookkeeping works with clients, explaining payroll services to fit their needs and budget. Prosperity Bookkeeping’s payroll services start as low as $95 a month. Contact us today for more information about professional payroll processing for your small business.
About the Author: Once a mild-mannered reporter and editor, Joan Koehne took on the persona of her alter ego, Wonder Writer, to launch Writer to the Rescue, the content writing division of Packerland Websites. Wonder Writer is “saving the world one word at a time” with power-packed content marketing for digital and traditional media outlets.
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