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The Many Dangers of Payroll Errors

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Payroll errors can cause a host of problems, which is why payroll should be handled by a professional. Even a minor payroll mistake can cause your company an issue. For example, you’ve underpaid an employee by two hours. That employee may take grave offense to the issue, speak to other employees about the issue, and end up causing a reliability issue across the board. This could potentially give your business a bad name, and impact the possibility of gaining new employees in the future.

Here’s some more examples of the dangers of payroll errors:

End of Year Filing

W2s are mandated by the federal government to be received by all employees no later than January 31st each year. If there are small errors in these distributions, such as an earnings error or social security mismatch, you may upset Uncle Sam and be penalized by the federal government. ADP Compliance Insights has useful information on tax compliance, so you’re not saddled with a huge bill from the IRS due to mistakes.

Missing Mandated Payments

Missing tax deposits and filing deadlines is not worth the costly penalty. If you have federal, state, county, and municipal payments that are required to be paid by a certain date (whether quarterly or yearly), you don’t want to miss these payments. The penalties for being late are extremely costly, and could even cost you your ability to run your business. For example, a tax lien may be placed on you forcing you to shut down operations.

Miscalculating State Unemployment Tax

You absolutely don’t want to miscalculate your state unemployment tax. Although all states have different rules and regulations, if you fail to make your state unemployment tax payments on time, you may lose the federal unemployment tax credit at the end of the year.

Miscalculating Your Employee’s Garnishments

Some employees may be required to make payments to institutions owed, for example child support or student loan garnishments. These are taken out of that employee’s check. Every business, small and large, needs to understand how this works; or, at least, have a payroll professional who understands these intricacies. As an employer, it’s your responsibility to hold the amount grated from the employee and send it to the third party that is owed. Child support is a first priority in the eyes of the court.

Overpaying Your Employees

By not participating in regular audits of your payroll, you may be shelling out more money than is needed. This benefits the employee, but not your business. And, it complicates your end of year taxes. You’ll have to figure out where money was lost, but if you overpaid an employee you may not be able to get it back.

You can go ahead and take the missing money from your employee’s check, but expect this action to be very upsetting to the employee. There are an extreme amount of cautionary measurements that you and your payroll company should be making to ensure this error doesn’t occur. If it does occur, you absolutely must comply with federal and state law regarding getting the funds returned to you.

As you can see, payroll is a complicated process that could cause disaster if mistakes are made. You want to be on top of payroll as much as possible. Be sure to check out various solutions, such as software solutions or outsourcing payroll to a reputable company. This will make your life easier and will lessen errors.

Last updated on January 7, 2016.

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