It is the responsibility of every business to compute the payroll of its employees. And by computing, it means the correct calculation of the payroll. If you commit mistakes in calculating the payroll of your employees, this can be quite inconvenient for you and your business. An incorrect payroll may result to loss of trust of your employees. It will also result to payment of fines to the government since wrong taxes were remitted to them. It is important to compute for the correct amount of payroll for transparency purposes.
Below are some common payroll mistakes that you should avoid in computing your employees’ payroll.
- Classifying workers improperly
There are two kinds of workers in a company: the contractors and employees. Mixing up the two can be a costly mistake for you and your business. You don’t pay benefits for contractors. You don’t withhold tax in their behalf. Meanwhile, employees are entitled to their monetary benefits and you are required to withhold tax from their pay checks. If you misclassify a worker, you will have to pay both the employee and employer’s share of taxes plus penalties and interest. You might also owe back wages to the employee.
- Classifying exempt employees improperly
You also need to remember that there are two classifications of employees in a company: the exempt and the non-exempt. In the case of exempt employees, you do not pay overtime wages to them. It is different for your non-exempt employees. You are required to pay overtime wages to them should they work beyond 40 hours in a work week. If you mistakenly classify an employee as exempt from overtime wages, they could miss out on wages. As a result, you’ll owe them back wages. Make sure to check your state laws as some states might have different laws about who can be exempt.
- Miscalculating overtime wages
Overtime wages are additional wages you pay for your employees in excess of the normal working hours they render. Usually, an employee has to work 40 hours per week. If he works beyond that, he is entitled for an overtime pay. If you do not pay the correct overtime rate, you might owe back wages, penalties and interest. The FLSA states that you must pay employees 1.5 times their regular rate of pay for any time worked beyond 40 hours in a week. You might also need to check the rules of your state regarding overtime pay as some states might have different overtime wage laws.
- Running payroll late
It is very important to pay your employees in a designated pay frequency. Your employees rely on their wages for their living. They are expecting to receive their wages on a regular basis. If not, this can destroy their trust in you and can result in low performance of their jobs. Pick a regular pay frequency for your employees and stick to it. You can pay them weekly, biweekly, semi-monthly or monthly.
- Paying the wrong tax rates
This is an important compliance to your state laws. Paying the wrong amount of tax can result to penalties and interest to your business. Tax rates may change all the time so you need to make sure that you regularly check them. This will avoid any inconvenience in your part.
Avoiding these common payroll mistakes can benefit you and your employees. It will create a harmonious relationship between you, your employees and the government.