Having your financial services in order is a crucial part of running a successful business. It’s challenging to manage these tasks on your own, and making a payroll mistake can have severe consequences. Take note of the following pitfalls so that you can optimize your payroll services and ensure employees receive compensation without issue.

Payroll Mistakes to Avoid

1. Wrong Employee Classification

Many small business owners outsource work to independent contractors and temporary staff. Since these workers aren’t classified as part- and full-time employees, they’ll need different tax forms, like the 1099. To avoid misclassification penalties, familiarize yourself with each employee type and the IRS’s rules surrounding them.

2. Not Keeping Records

Always keep a payroll record that details which employee received how much money. If the IRS performs an audit, you’ll need to show the company’s profit and how it was given to employees. You can face fines at the end of the tax year for having poor records. If you need help handling your payroll services, consider outside help.

3. Paying Incorrect Tax Rates

Since tax rates change regularly, be aware of how they are applied to payroll. You’ll need to monitor federal, Social Security, Medicare, and unemployment taxes as well as state and federal income taxes. If you pay at the incorrect rate, you may have to make up the difference and pay fines from the IRS. You may also complicate employees’ yearly taxes by removing the wrong amount from each paycheck.

If you’re a company owner who wants to outsource your payroll services, turn to the skilled team at Talent HR Solutions in Honolulu, HI. Since 2003, these professionals have offered local and small businesses payroll services, HR consulting, and employee leasing. View their services online, or call (808) 354-0498 to schedule a consultation.