While nearly 80 percent of small businesses handle their payroll internally, roughly one-third of small businesses have reported errors in their payroll. Among the small businesses that report issues, the most common issues include late disbursement of checks and direct deposit, withholding an incorrect amount of taxes, faulty record keeping, and underpayment or overpayment of employees. With so many businesses concerned with handling their own payroll, it may be time to consider outsourcing.
Typically, small businesses spend about three weeks a year managing their company’s payroll taxes, either by the business owner or by staff. Not only are companies spending a large amount of company time doing their payroll, they may spend even more time if a mistake occurs and the IRS forces the business to seek a financial or legal solution. Laws and regulations are constantly changing and it can be difficult for small businesses to keep up with the changes, so here are several tips that can help businesses with some of their payroll issues.
Make sure that all employees are classified correctly. This becomes more of an issue when independent contractors are on payroll. Even if they agree to be classified as such, it does not mean that it is the legal way to pay for their services. If the independent contractor performs the same service that is offered by the business, the contractor should usually be classified as an employee, though of course there are always exceptions.
Set the budget to include wages and payroll taxes that must be paid to the federal and state governments. Depending on the state where a business is located, the business may be required to pay other employment taxes, so it is important to learn what is required by state law. Businesses are also required to match Social Security and Medicare that is withheld from employee’s pay, equivalent to 7.65% of gross pay. FUTA (the Federal Unemployment Tax Act) tax is also something to keep in mind when planning a company’s budget.
Many small businesses show concern for providing health insurance for their employees. If the business has more than 50 employees, per the Patient Affordability Act, the business must provide health insurance and have a plan in place so employees can choose to participate.
By outsourcing payroll, a company can have peace of mind in whether or not the payroll is being done correctly. Errors can result in costly fees and may be in better hands with people how have years of experience doing to task. Contact the experts at Padgett Payroll Services® for all of your payroll and tax needs.