A vital ingredient to success in business is the accurate management of payroll. Small business payroll mistakes can cost in more ways than one, so it’s critical to learn how to avoid pitfalls when using QuickBooks and processing payroll. Pay careful attention when hiring new employees, when changes in an employee’s marital status occur, and during the end-of-the-year payroll practices.
It’s no surprise to you as a small business owner that payroll can be complicated. When your business reaches a certain level of success, payroll can become the dreaded task that can drain your time and energy during each pay period, every quarter.
Broken Arrow small business owners and financial managers who are aware of the most common mistakes made in payroll when using the Quickbooks application avoid problems and penalties. Wisdom comes as we learn from others, so take a look at the most common payroll mistakes and learn to avoid things such as:
1. Underestimating the importance of payroll item account mapping
Each payroll item in QuickBooks should be assigned an account for payroll transactions to be properly recorded in the ledger. Mistakes in setting up the payroll item mapping can be located in a Payroll Items Listing report which shows the payroll earnings, deductions, tax items, tax table limits and rates (Reports – Lists – Payroll Item Listing). The report should be utilized to verify the desired General Ledger account is used.
2. Paying payroll tax liabilities with a check
Business owners may make the mistake of writing a check for payroll tax liabilities when payroll liabilities and payroll tax expenses are higher than expected. QuickBooks warns users when the recommended procedures aren’t followed, and a heeded warning can result in avoiding mistakes. But users may mistakenly overlook QuickBooks warnings, and process payroll incorrectly, simply from a lack of knowledge. The warning doesn’t prevent users from using the wrong type of payment such as writing a check when making payroll liability payments.
- If owners discover there’s been a mistake in paying payroll tax liabilities, they should determine if the check has cleared. If it hasn’t, they can void the check and recreate it correctly by selecting Employees > Payroll Taxes and Liabilities, then Pay Scheduled Liabilities.
- If the check has cleared, rather than using a Journal Entry to make the correction, use the Payroll Liability Adjustment option to make the adjustment.
3. Incorrect payroll deductions
Business owners need to verify each employee is paid their gross income accurately. Deductions should be on time to bypass problems with payroll.
4. Miscalculating taxable income
Business owners may provide their employees with not only a salary but also benefits like business expenses, subsidized housing, and transportation. Miscalculating taxable income could increase the possibility of an audit in the future. It’s vital employers apply the accurate deductions for each payroll cycle to bypass trouble in the present or future.
5. Misclassifying employees
In addition to hiring staff, small businesses often hire independent contractors to streamline costs for needed services. The problem is, sometimes business owners mistakenly misclassify regular employees as independent contractors. Misclassification causes business owners to avoid paying benefits, overtime, taxes, and workman’s compensation. If an employee is misclassified, there are hefty penalties ahead with the state and the federal government.
When employees complain to the Department of Labor about being misclassified, a number of unwanted penalties result. Employee misclassification costs employers a lot of hard-earned money, wasted time, and unnecessary trouble due to mistakes or misunderstandings surrounding proper classification and tax regulations.
When lawsuits resulting from employee misclassification are brought to the public’s attention, bad publicity damages the business’s once good reputation. As you know, when a reputation is publicly blemished, it is difficult to overcome the results. The effects of a tainted name can impact a business negatively for years to come.
Keeping track of deadlines can be overwhelming when payroll is done in-house. And small business payroll isn’t forgiving when errors are made. You won’t be in business very long if you forget to pay your employees or your business’s bills.
- Set up systematic reminders and help avoid financial penalties that come when a deadline is missed.
- Understand that payroll tax reports need to go to the right jurisdictions.
- Income tax withholding reports may need to be sent quarterly or annually.
Why Small Businesses Outsource Payroll
Payroll must be well organized to prepare for growth. Small business owners and financial managers who find themselves overwhelmed, disorganized, or stressed about payroll and the steep consequences involved in payroll mistakes often end up outsourcing their payroll to the experts. Outsourced payroll providers equipped with QuickBooks software give business owners peace of mind knowing their small business payroll is in great hands.
Avoid Mistakes and Decrease Stress By Outsourcing Payroll
Shockley Bookkeeping helps businesses avoid costly mistakes and simplify their payroll. Paying your employees should be easy. That’s why Shockley Bookkeeping offers:
- Proper payroll setup
- ACH direct deposits
- Management of payroll forms
- Calculation of payroll taxes and insurance
- Accurate and on-time payroll
Our team of professionals with over 50 years of combined experience has helped hundreds of small businesses avoid payroll problems. Shockley Bookkeeping makes sure your payroll is set up and generated accurately—including all the quarterly tax forms—so you avoid tax mistakes and decrease stress at the same time.
Shockley Bookkeeping payroll services bring business owners extensive payback. Knowing you haven’t miscalculated taxes, insurance, and other deductions helps decrease the payroll’s potential stress. When everything from the handling of direct deposits to filing quarterly tax forms is outsourced to a reputable company, business owners appreciate the many benefits. Owners find they are better able to serve the needs of their customers and plan for business growth.
When you hire a trusted payroll service, you can get back to focusing on your business again. See our Payroll Services and contact Shockley Bookkeeping today at 918-615-8380 for a free quote and consultation.