Did you know that as soon as you hire on a person to assist you with your self-employed business, you immediately have to add payroll expenses to your overhead costs? Small business payroll expenses often fall between 15 and 30 percent of a business’ entire gross income, and can fluctuate to as high as 50 percent, depending on business type.
Because payroll processing is such a crucial part of a business’s operations, it is imperative to be accurate on all record keeping platforms. Failure to do so can cost thousands of dollars for you as a small business owner, hurting your overall bottom line.
Where Should a Small Business Owner Be Extra Careful in Payroll Processing?
New Hires: Having a new individual join your business to fulfill a need in-house is an exciting time! Promptly make your new employee fill out the proper paperwork for payroll processing, including:
- I-9, which is specific to employment eligibility verification
- W-4 , which is specific to payroll tax deductions
- Health benefits, including opt-out option
- 401(K) and other retirement plans, including opt-out option
The opt-out options provide you a written record if the employee does not choose to accept health or retirement benefits.
Handwriting and Electronic Payroll Processing: As all forms are filled out for payroll tax deductions, make sure you follow up with the employee if you cannot clearly read their handwriting. Inputting the wrong social security number on IRS forms, for example, is a catastrophic mistake that affects both the business and the employee.
While payroll management programs are convenient and easy for many small business owners, typos still happen, causing yet more mistakes. Slow down when typing to help ensure accuracy. Before electronically submitting forms, read the numbers out loud while looking at the screen to verify all numbers. Make corrections as you go.
Applying Estimations versus Actual Figures: Contractors, suppliers and your employees deserve to know exactly how much they will be paid. Estimations can solicit heavy penalties from the IRS, and you will have to make up for this mistake in future invoices or paychecks. This can be a severe impact to your bottom line for ongoing operations and profits.
Cash Flow Management: If you lack funds to pay your employees, you affect their standard of living and expectation of wages. The IRS will also tack on heavy payroll tax penalties if you fail to provide your employees their due wages. If you are not sure how much to set aside for each pay period, the IRS website and other payroll managers can help.
Your biggest takeaways from these hefty mistakes is to:
- Slow down
- Double check all numbers
- Ask for help
Small business owners have many tasks to manage their business. If payroll is too daunting for you, explore outsourcing your payroll. There are many options designed specifically for small businesses. Choosing one of these can help you maintain valuable relationships with your contractors, employees and suppliers.
Author: Padgett Payroll Services® is a network of payroll processing professionals that assist small business owners all across North America. We provide advice and services for small businesses needing help with government compliance, bookkeeping services, payroll tax management, credit card processing, and management of overhead financial and operations. Get a personalized quote by calling 877.244.5842 or fill out our contact form today!