A payroll service is the process of paying your employees, from calculating their withholdings to cutting checks. This is a highly regulated part of a business that can quickly get complicated, so it’s common for small business owners to make some mistakes. These mistakes can lead to fines or even an IRS audit. Familiarize yourself with the following common mistakes to be proactive in avoiding them.

What Are Common Payroll Service Mistakes?

1. Forgetting to Deposit Withheld Taxes

The IRS has two deposit schedules, monthly and semi-weekly. It is important to determine which one you need to follow. The taxes you have withheld on your employees’ behalf must be deposited on this schedule throughout the year. If you are late in depositing them, you will be penalized for up to 15 percent of the amount.

2. Withholding the Wrong Amount

Tax withholding has a lot of room for mistakes, which can lead to withholding the wrong amount of earnings. Common mistakes in this situation include forgetting to withhold both state and federal tax, forgetting to include taxable benefits such as bonuses, excluding reimbursable expenses, or inaccurately calculating the post-tax deductions.

3. Misclassifying Employees

Many employers misclassify an employee as a contractor. This results in underpaying payroll taxes, leaving you susceptible to an audit. This could be the case if someone is an employee, and they cannot choose when and where the work is performed, or if they use your materials for the work performed.

4. Failing to Issue 1099s

If you do have independent contractors and you pay them more than $600 in the tax year, then you must issue a 1099 form reporting what you paid them. They will then pay taxes on their income. All employers should have independent contractors fill out W-9s when they begin their work, so you have that information on file to issue a 1099 at the beginning of each year.

The best way to avoid these mistakes, and other common bookkeeping errors, is to hire a professional payroll service. Scott Cornelius CPA, PC is the trusted business accounting professional for small businesses in High Point and Kernersville, NC. He offers complete solutions, including bookkeeping, payroll, CFO management, new business formation, and risk assessments. Learn more online and call (336) 885-5100 to schedule a consultation.