Common Payroll Compliance Mistakes

Common Payroll Compliance Mistakes

Payroll is no doubt a time-consuming and often arduous part of running a business. Nonetheless, it’s critical that it’s done correctly and that you maintain compliance with both federal and state laws. Failing to do so can result in ugly penalties — not to mention some major headaches. It’s important to understand some of the most common payroll compliance mistakes that businesses make and know how to keep your company in the clear.


Falling Behind with Paperwork

Due to the sheer volume of paperwork that employers deal with, it’s fairly easy to lose track of documents if you’re not diligent. Whether you’re missing reporting on employee vacation time, failing to maintain current tax information or prematurely throwing out paperwork, you can quickly find yourself in trouble. Accordingly, it’s extremely important to be highly organized with payroll and have an effective system in place to make sure that you’re always on top of things.

Fortunately, technology has made this significantly easier than in the past — and investing in a document management system (DMS) can be a big help. It’s also wise to familiarize yourself with the relevant laws concerning records retention on another RMI blog post.


Incorrectly Classifying Workers

Classifying staff as traditional employees or independent contractors can lead to a lot of confusion. It may be tempting to cut costs by classifying workers as independent contractors. However, the IRS can be less than sympathetic for misclassification — and they’re starting to crack down on it. It’s crucial to understand exactly what constitutes an independent contractor and ensure that you’re classifying workers correctly.


Failing to Document Overtime Hours

When employees work more than 40 hours per week, the Fair Labor Standards Act mandates that you pay them no less than time and a half their regular pay rate for additional hours. Failing to do so can get you in some hot water and is one of the primary reasons that employees sue their employers.

The problem is that some companies are less than meticulous about documenting overtime hours — and if you slack in this area, it may come back to haunt you. For guidance on handling overtime pay and access to further resources, the Overtime Pay section on the U.S. Department of Labor website is helpful.


Not Filing Forms on Time

When it comes to filing taxes and other forms, there are some firm deadlines in place that simply aren’t negotiable. If you happen to miss the deadlines, it’s going to result in some backlash and often harsh penalties. Accordingly, you should always be aware of when each form is due and create a calendar to ensure that you never miss a deadline. The Employment Tax Due Date guide on the IRS website has a rundown of all reporting due dates to alleviate confusion.


Knowing which payroll compliance mistakes to look out for puts you in a better position to prevent complications. In turn, you can reduce your liability and avoid any unwanted attention from the IRS.

Photo by CarbonNYC [in SF!]

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