7 Payroll Processing Tips to Keep You Out of Hot Water
Payroll processing may seem like an elementary task to the untrained eye, when in fact, it is a complex set of processes incorporating many rules. Due to this complexity, many startups don’t do payroll right. Uncle Sam fines 1 out of every 3 businesses for preventable payroll errors. Payroll processing can be a full-time job, even for a company employing just a handful of people.
There are a variety of tasks and laws that must be dealt with in payroll processing such as:
- New hire reporting
- Health plan deductions
- Retirement plan deductions
- State and federal quarterly tax withholdings
- Staying compliant on worker’s comp, unemployment insurance, disability insurance and FMLA
- Issuing W-2s at the end of each year
Here are some payroll tips to help your company stay compliant with the IRS:
- Decide on employee compensation terms and document them. Consider how you will be tracking employee hours and handling paid time off and overtime pay.
- Accurately classify your employees. Many startups choose to hire contractors instead of employees to save on costs. Simply labeling and paying someone as a contractor doesn’t make it legal. This mistake comes at a hefty price tag with ongoing consequences for your business. Check out this post we wrote clarifying the topic of employee classification.
- Be stellar at record keeping. Besides keeping track of employee hours, you are legally required to collect particular employee-related data and file it with local, state and federal agencies. If you are interested in more details on this, check out Thorny HR Compliance Concerns for Startups: Hiring, Pay and Benefits, Oh My
- Don’t forget to include payroll taxes in your budget. Not only are companies required to pay federal and state payroll taxes, you are also responsible to match social security and Medicare that is being withheld from employee’s paychecks (7.65% of the gross pay). Each employer is also responsible for contributing to the federal unemployment fund via the FUTA tax.
- Automate your state and federal tax deposits. There is a 100% penalty for missing a withholding deposit deadline with the government, making this a costly mistake.
- Consider providing tax-free fringe benefits. If you are thinking about giving your employees raises, consider providing fringe benefits that would be tax-free to your organization. These include benefits such as retirement plans, health, dental, and vision insurance as well as child care subsidies. For more ideas on tax-free fringe benefits, consult IRS Publication 15-B.
- Give someone else the payroll headache! We saved the best tip for last. Chances are you don’t have a talented accountant on your team who has plenty of time to devote to needy payroll processing on top of his/ her primary function. While payroll isn’t rocket science, there are plenty of opportunities to save time and stay compliant by outsourcing to experts such as Escalon. Ask us how we can save you time and keep you cool.