Nine Tips for Payroll

We all have to pay taxes, but small business owners have another level to go from there with payroll taxes. And to a fresh, unassuming eye, they can seem very complex and strange, especially if they don’t have the time to worry about it. So I decided to help by coming up with 9 tips to help those with payroll tax problems. I hope you enjoy! Let me know if you did, and if you have any questions!

Number one:

It is very easy to forget Bank Holidays including Thanksgiving, Christmas, New Years, etc. And payroll is not processed on these days! I urge you to spend some time looking over your payroll schedule to see if any of your paydays will be impacted. If you notice it earlier, you can change the payment date to another time. If you missed the boat, it is super important to let your staff know about the pay days and when they will receive their hard earned money.

Number two: 

Missing W2 or 1099 dates. While an excuse for this may be that you were busy, you absolutely can not let this one slip away. Forgetting the fact that there are HUGE penalties - it is an incredible disservice to your employees who need the information to file their own tax returns. This one can not pass you by. You may lose the trust of your employees and it will put a financial burden on you. I suggest that you take any time you have to get it done early. That way, you know that there will be no trouble down the road.

Number three:

Bonuses are a tough one. On the one hand, who doesn’t like a bonus? Seeing a little more money on the check? But on the other hand it comes with huge burdens with taxes. Both for the employer and the employee. Bonuses are treated like normal payments and therefore have to be distributed appropriately. This makes a mess during tax season. So while it might be tough, I would suggest that you do the proper thing and tax the bonuses. Because if you don't, people always run into problems down the road. And when it comes to tax season, the most important season, you both want everything to be as tidy as possible.

Number four:

You may not include gift cards, prizes, and awards in Employees Income but I’m here to tell you that it all counts. While it may seem trivial, the Fair Market Value of them are considered to be taxable fringe benefits! My key is to never think that any money is trivial. So it’s important to always include them in employee income.

Number five:

Never get the following mixed up, it may be costly if you do!

That some work as independent contractors while others are normal employees. IC’s do not have to be paid minimum wage or overtime, and you also don’t withhold employment taxes from their wages. Also, if you happen to misclassify an employee as a contractor, they may miss out on wages and the government will miss out on tax revenues, which is not a good look for you. If you do happen to misclassify, you’ll 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. These are things I’m sure you will not want to do.

Number six:

Misclassifying Employees as Exempt vs Non-Exempt. When a worker is classified as exempt when they should be non-exempt or vice versa, it could affect how much money they get in their paycheck. Non-exempt employees are eligible for overtime pay, so if you have them classified as exempt, they won’t be able to receive those funds which results in lower paychecks. Not knowing the difference can be too costly to the business you’ve worked so hard to build. 

I suggest that when hiring and onboarding your new worker, make sure they are classified correctly from the start. Determine if they meet all the standards to qualify as exempt from overtime pay. If you need a fix for this mistake and you’re working with a payroll service, let them know about this change, and they may be able to help you!

Number seven:

Failing to deposit withheld taxes in a timely fashion can become a major problem. Fashion Payroll tax deposits vary by company. When the taxes get to a certain amount, they have to be deposited by the next business day! If a company doesn't deposit these taxes in its due time, the company might be subject to late deposit penalties and interest! Penalty rates range from 2-15%, depending on how late the deposit is.

It’s very easy to get buried under this, so get on it!

Number eight:

Paying the wrong payroll tax rates can definitely become a huge issue if you are not using a payroll service and are relying on an outdated payroll chart. Tax rates change all the time and may cause payroll issues. The rates you used when you started paying employees might not be the correct rates now. When you pay the wrong rate, you will have to make up the owed taxes, plus penalties and interest! Make sure you regularly check your employment tax rates. Many tax rates are updated every year. Stay on it because if you don’t, you also may leave your employees owing a tremendous amount of taxes which is a huge disservice to them.

Number nine: 

Consistently running payroll using a designated pay frequency for your employees is a huge deal. For example, you have either a weekly, biweekly, semimonthly, or monthly pay period. Your employees rely on receiving their paychecks. Failing to pay them might destroy their trust. And, not running payroll on time can make you noncompliant with the state pay frequency requirements.

Pick a regular pay frequency for your employees and stick to it. Set a reminder to run your payroll on time! Do your payrolls with enough time for the payments to process. For example, let’s say it takes three days to process direct deposit for payroll. You should run payroll three days in advance to ensure that your employees get paid on time.

About Us:

We hope you found these tips helpful! 

At JSN Consultants, we are particularly well equipped to support small- to medium-sized professional services firms. We also provide comprehensive accounting and advisory services across a wide range of industries.