3 Common Business Payroll Mistakes to Avoid

Handling payroll can be one of the most stress-inducing responsibilities of a small business owner. However, neglecting payroll–or doing a poor job of it–can bring your business down, and fast. Here are some of the most common business payroll mistakes and how you can overcome them.

1. Doing Payroll on the Fly

As a small business owner, you’re used to figuring out what you need in the midst of each situation, resolving the problem, and making it all look easy at the same time. Plus you’re doing this for multiple issues all at the same time. This good-under-pressure work ethic can serve you well, but when it comes to payroll, a little bit of “winging it” can lead to a lot of trouble.

Failing to plan for payroll might result in a major financial crunch, unhappy employees, and a lot more stress for you to handle. Last-minute payroll management also makes it more likely that you’ll overlook key legal and tax requirements. That’s not a mess you want to make.

You have better options. For example, you could talk to your accountant about taking on payroll management for your business. If you have a qualified, reliable employee in your business, work together to set up a payroll system your employee can handle and you can oversee. Or, look into cloud-based payroll services, such as Newtek, ADP, or ZenPayroll. You can take advantage of an accounting tool that includes payroll capabilities, such as Xero or Intuit QuickBooks.

2. Overlooking the Fine Print

Tax law is complex, which makes figuring out payroll requirements a little intimidating. However, the worst move you could make is to ignore those legal specifications. Fees on missed payroll requirements can add up, and an audit could leave your small business reeling.

When in doubt, do the research. There’s information online for federal regulations and for payroll requirements by state. Once you’ve learned all you can, schedule an appointment with your accountant, who is your best resource. There’s enough fine print–and plenty of changes to the fine print on a regular basis–that it’s worth an appointment to avoid potential problems and fees.

Your accountant can help you set up a payroll schedule that works for your cash flow and meets legal minimum requirements; determine whether you have employees or contractors, when you’re not sure; and go over holiday pay, overtime, bonuses, withholding, and gross vs. net payroll so you know the cost of each employee. This kind of information gets dizzying. For the long-term financial health of your business, you’ve got to deal with it. Getting a professional to help you is just good business smarts.

3. Leaving Your Employees Out

Nobody likes being left in the dark. Talk to your employees if you’re thinking about making payroll changes such as rescheduling payroll, changing payroll methods or providers, or reworking the way you calculate bonuses or commissions.

This is their livelihood, after all, and they’re going to be affected by the changes you make. Even a simple switch, such as changing payroll schedule from every two weeks to bimonthly, can have a big impact. Hold informational meetings when you’re thinking of changes, get input, and give employees plenty of warning before changes take effect.

Be sure, too, that you provide all the legally required information for your employees. There are certain workplace posters you need to have in place; be sure you keep these up-to-date.

Payroll can get complicated, but it has to be done, even if you’d much rather be figuring out ways to make more money instead of just handing it out. Take a proactive approach now and avoid these common business payroll mistakes. It will have a positive effect on your business, your finances, and on your employees.

Learn how to manage your business’ financial health across the board – not just your payroll – by downloading our guide, “Evaluate Your Business’ Financial Health.”