Payroll for small business: 6 common errors to avoid

The beginning of the month is when employees highly anticipate salary to pay their bills and other expenses. If there is a delay in payroll processing, the salary deposit also gets delayed. And if this happens frequently, it only causes disappointment and frustration among employees, which leads to low productivity and employee turnover. The employee can even approach a labor commission or a civil court, which might impose a penalty over the company for payment delay. Starting the payroll process early and making sure there is enough cash flow to process the next month’s wages should be the steps a company should follow.

Working overtime is very common these days, especially in small businesses where there is a shortage of employees. From employees' perspective, they mostly do it to meet their financial obligations. There is a standard wage for every hour an employee works post their official work timing. Their managers have to record the extra hours worked and the payroll department to ensure that they are being paid for additional hours. Not holding accountable for this can lead to paying extra interest, fine, or facing employee backlash or lawsuit.

An employee is different from a contingent worker in the same way an exempt employee is different from non-exempt employees. A payroll manager should be aware of this classification and which employee falls under which category. The wages of these employees vary based on the category they fall into. For instance, non-exempt employees are eligible for overtime pay. And contract employees do not qualify for company benefits and work on temporary assignments.In many instances, this misclassification error happens, followed by an employee getting paid incorrectly.

It’s common to notice small businesses using a personal account for business expenses. You might have concluded getting a business account is an unnecessary expense. But managing payroll through personal accounts is considered unethical and unprofessional. Payroll for small businesses turns complicated without an efficient employee payroll system. But businesses need to have clear records of where cash flow should go from and come into one account. Also, during audit, personal and business expenses will be rummaged.

Payroll taxes are the tax amount paid by employers and employees to the government. It’s a certain percentage of employees’ salary, spent as local, state, or federal tax. The problem with this is it changes frequently. Not knowing the up-to-date payroll tax rate and miscalculation leads to improper tax payment. This wrong estimation, in turn, makes the company owe more money to the government. Sudden funding needs in a small business are always stressful. Wrong tax payments can also drag your business name and reputation through the mud if you are in the growth phase.

The critical function in payroll for small businesses is to store and keep track of the payroll data. Payroll experts suggest diligent maintenance of payroll records, and it can help businesses in budgeting and expense prediction. This data can also guide you in making hiring decisions and creating an error-free payroll management system. This data should include employees’ information like joining date, basic salary, gross salary credited, net wage, processing date, etc. This payroll data has to be securely protected as it involves the private information of your current and past employees.