29 Jan Payroll mistakes that your SMBs must avoid
According to Investopedia, the term payroll refers to “The sum total of all compensation a business must pay to its employees for a set period of time or on a given date”. Usually payroll is managed by the HR or accounting department of the company. But what is the case for SMBs? Well for SMBs they are usually handled directly by the owner or an associate in the company.
SMBs faces a particularly daunting challenge when it comes to payroll. With only a few employees who is running the business, and with them taking up different roles that are available. At times they might be a sales maven, some other day they are a marketing guru or a back-office ace. With these many roles to handle with one at a time. It might be difficult to handle everything at once, and so it might be easy for them to make a mistake. To avoid mistakes, SMBs can outsource their payroll to HR professionals, or implement technological solutions that would help them automate payroll. With apps like Time clock software like Albam, businesses can easily track the number of working hours of employees. Review them and then further integrate this data with other accounting softwares for the purpose of payroll calculation.
Below we have compiled some common payroll mistakes that small business owners might make without these tools.
Miscalculating the no of hours worked:
Underpayment or overpayment of Staffs
Calculating the number of hours that the employee has worked for sounds easy. But it is actually very common for SMBs to mess this up. With different methods of time tracking and the variables that are always happening, from employees clocking in and out at multiple locations, lost of physical time card and to even some more serious cases such as the practice of buddy punching. Unless the employees’ work records are put into a central database that is safeguard & automatically updated, then the probability of miscalculating the number of hours that the employee has worked is always on the loom.
Well, luckily there is a software out there that can help you track the number of time that the employee has worked for. By eliminating manual calculations, not only will you be able to save time, but you would also be able to dramatically reduce the chance of errors.
Taxes that are not filled rights: Fines
According to an analysis of data from the IRS & SCORE, around 33% of employers make payroll errors. And 40% of SMBs incur an average of $845 each year in penalties for late/incorrect filings or payments. Each country, and each state has their own set of regulations. Even different types of workers have different labels. For example you do not generally have to withhold or pay any taxes on payments to independent contractors, but you owe payroll taxes on your employees’ wages & taxable benefits.
The IRS (Internal Revenue Service) is very serious about receiving payroll taxes from employers. Some serious penalties include both financial & crime penalties in the prison. Worst case scenario, you might even lose your business.
Not keeping Employees’ Work & Payroll Records
Even if you have outsourced your payroll to a professional finance company. You still must make sure that you have your own record-keeping system. This is since, you’ll never know when you will need those records again.
The department of Labor specifies that payroll records needs to be kept & retained for 3-4 years. With some states like New York & California requiring some records to be kept for 6 years.
Below are some examples of work records that you must keep (mandatory)
1. Work Time records, Time sheets
3. Tax forms
4. Proof of past payments
To better understand which employee data and records you must keep, you can read it here.
Missing payment deadlines
Just like with your personal taxes. There are payroll deadlines that you need to mark on your calendar.
Usually a payment is made either weekly, bi-weekly or monthly. Payments are usually agreed and set upon a date between both employers and employees. When those paychecks came in late or at an amount that is less than what is promised, then this will affect their lives which will cause dissatisfaction when working in your company. Set a regular date & time frame on when you will pay your employees. You might as well set a reminder so that you would be able to complete your payroll on time.
When depositing a paycheck, you must also make sure that payroll taxes are reported and paid to both the federal and state government. As it takes time to process salary payment deposits, it’s best to run your payroll in advance to ensure that your employees are paid on time.
Preventing Payroll Errors
When it comes to payroll. Always remember that there’s basically no tolerance for errors. However by processing payroll manually, you would marginally increase the chances of error. As you pull in data from various resources such as excel spreadsheets, time sheets, etc. Add that up with poor record keeping or any force majeure conditions that might happen unexpectedly. Then chances of mistakes that might occur when calculating payroll is inevitable.
What’s even more suprising is, according to the data from CPA “As many as 70% of SMBs in the US, equals to around 1.5 million business owners, handle HR function with staff managers who manage it on an ad-hoc basis in addition to their primary job.” The studies also showed that individual business owners spend more than 13 hour a week on basic human resources tasks, with 82% of them having no formal HR education or certifications. The risks in non-trained staff and business owners managing Human Resource is putting their companies at risks.
So why face these risks when there’s an easier way of doing things. Adopting the right Timesheet & Payroll software is one of the best solution that one can always choose to lift off your HR burden. By investing in the right software, you will be able to increase accuracy while also decreasing the no of daily repetitive tasks that are needed to calculate the right amount of payroll.
Looking to automate your Payroll? Start with Albam
Albam is an all in one Human Resource solution system that allows you to manage and centralize every aspect of your staffing needs. From attendance to automated payroll. Backed by cutting-edge cloud computing system, clock in anywhere and anytime to access, personalize and download your data.
Join more than 50,000 corporates that have trusted Albam in more than 20 countries worldwide now. Time attendance & Payroll management has never been this easier.