Payroll is incredibly serious. Not only do your employees rely on you paying them accurately and on time, if you mess up or make mistakes, you could face serious fines and penalties.
Starting a new business is exciting. But going too quickly or not knowing all of the relevant employment laws, like misclassifying an employee, can lead to costly fines and employee lawsuits. There are extreme financial risks, especially for small businesses, to not understanding payroll and the regulations surrounding it.
Late Employment Tax Fees
Companies are required to pay taxes, just like individuals. But companies also have to pay employment taxes regularly. Missing one of these payments can have severe financial consequences.
If you do not pay your employment taxes on time, you may be subject to a late employment tax fee of 15%. If you owe $1000 in employment taxes but fail to make the payment, you still owe the $1000 in taxes plus an additional $150 in late employment tax fees.
It can be difficult to keep track of how much you owe in employment taxes when also trying to run your business. But failing to accurately record and track your tax burden could really eat into your bottom line. One way to avoid these fees is to adhere to a strict schedule of making your required employment tax payments.
Mis-Classified Employee Fees
Mis-classifying employees is a costly mistake, which can come in different forms. You could misclassify employees as exempt, where they’re not subject to overtime pay when they are really non-exempt and subject to overtime pay. Making this mistake could result in your company having to pay back overtime pay, 100% of both the employer and employee tax burden, as well as additional monetary penalties.
Mis-classification can also occur when you think you are working with a contractor but they are really an employee. To be a true independent contractor, you must not assert any control over the person's daily tasks, when they work, or how they work. Essentially, you're hiring someone to do a project, not individual tasks you assign to them. Wrongly classifying, even innocently, an employee as an independent contractor could mean you have to pay fines, back pay at 1.5% of all wages owed, and 40% of the misclassified employee's tax burden.
Intentional misclassification for either scenario comes with even stiffer penalties. But you can avoid them by partnering with a trusted HR outsourcing provider, like a Professional Employer Organization (PEO). A PEO will keep up to date on all the relevant HR laws that your company needs to adhere to and make sure that your company stays compliant by not letting you make costly and embarrassing mistakes.
Processing Payroll Under Wrong State Fees
In today's workforce, more and more employers are embracing hybrid or remote work. This means that, even for smaller companies, employees may work and live in a state that is different from where the business is physically located.
If your company has workers in other states, you must comply with the different regulations of each state. Some states have more strict employment laws than others, making for an operational headache. If you do not adhere to these state employment laws, you could be in non-compliance and subject to additional fines and penalties.
Having employees in multiple states can get confusing. This often leads to companies using one state's rules to pay an employee in a different state or simply processing an employee's payroll in a state other than where they live. This can easily be alleviated by partnering with a PEO since they handle these issues on a regular basis.
Miscalculating Wages and Overtime Fees
Another costly mistake that many small and new businesses make is to miscalculate wages and overtime. New companies can get confused by employment and pay laws in different states, especially when they have employees in more than one state and must comply with different regulations in each location.
A mistake on a paycheck could lead to a company owing back pay to the employee, having to pay the employee's portion of taxes, civil penalties for the company, as well as other monetary fines laid down by the state. Most states take employee pay very seriously and any mistake, even innocent ones, will lead to fines and penalties for the business.
A great way to avoid these costly fines is to stick to a strict payment schedule. This way, you know when you need to collect timesheets, how long you have to review them, and you have time to double-check your entries before finalizing your payroll. Even better would be choosing to work with a PEO who can handle all of this complexity and confusion so you don't have to. More importantly, they can also help you avoid the costly fines that come with any payroll mistakes.
A PEO can Help You Avoid Payroll Errors
Payroll is a landmine. New businesses and small businesses alike must take great care to make sure they run payroll correctly every single time. If they do not, they risk cutting into their bottom line by shouldering the financial burden of costly fines and penalties.
The best way to avoid these fines and the mistakes altogether is to partner with a PEO. Your chosen PEO has a staff of payroll experts. They will handle your payroll with accuracy every time! These experts will also remain up to date on ever-changing labor laws to help keep your company compliant in every state where you have employees.