Are You Making These 3 Payroll Mistakes With Your Small Business?
If you're like many small business owners, you are always looking for ways to save money. That might be one of the reasons you're doing your own payroll services. However, you may be making some errors that can end up costing you money or getting you into hot water with the IRS and your state tax office. Here are three common errors to avoid with your payroll.
Not Knowing about Changes in Law
One of the biggest mistakes made by small business owners is not being aware of changes in local, state and federal laws that affect business taxes. Changes are being made regularly, and not knowing about them can subject you to all kinds of trouble. For example, if your state has a new rate for unemployment insurance and you fail to add the new rate to your payroll, you won't file correctly, won't pay the proper amount, and may incur fees and fines as a result.
Classifying Workers Improperly
It costs less money to have independent contractors than it does to have employees, and many small businesses utilize the help of independent contractors on a day to day basis. However, should you classify your employees as independent contractors, knowingly or unknowingly, you may end up being responsible for interest fees and penalties when the IRS finds out.
If you aren't sure whether you have employees or independent contractors, it is important that you start thinking about what kind of work is done for you and what duties your workers are responsible for. Do you set their hours? Do they work for you exclusively? Have you given them any training? In that case, it is likely that you have employees. You should also check with the IRS to better understand what they consider an employee to be. That way you can pay the right taxes and not have to pay hefty fees because of a classification error.
Not Including Gifts and Certain Reimbursements as Employee Income
Any cash bonuses or gifts that you give your employees counts as income and must be reported. Some reimbursements also need to be reported; while reimbursements for business trips are not typically considered income, that may change if you are in effect paying your employee more money to work regularly at another location.
If you are doing any of the things in this article, talk to a professional payroll service company like Waggoner Frutiger & Daub CPA's about how you can start doing the right things for your business. They will be able to handle your payroll services, and you can concentrate on other aspects of your business without worrying.