Most Common Payroll Mistakes By Staffing Companies

AdminAssist July 20, 2020
7-minute read
Workers discussing payroll

No one ever said that running a small business was easy. But it doesn’t need to be as hard as some business owners are making it out to be.

Far too many staffing and recruitment companies are still attempting to handle their payroll needs on their own, which is causing countless headaches and issues. That’s why it should come as no surprise that 28 percent of small businesses are putting in upwards of six hours a month on payroll duties, which is significantly more than it should take.

In fact, the perfect system won’t require the business owner to dedicate any time towards payroll because it will all be outsourced to a team of professionals; thereby allowing them to focus on other important elements of their small business that they are more equipped to handle. If you’re a staffing and recruitment business still trying to handle your own payroll, then here are some of the most common mistakes that you can easily avoid by simply switching over to an outsourced system.

Not Classifying Employees Properly

When you enter employees into a payroll system, you are going to have to classify them in one of the available categories so that they can be properly paid. But not all employees are going to be classified as the same type and it is easy to mix one of them up, causing a huge backlog of work.

For example, if you classify someone as an exempt employee when they should actually be a non-exempt employee, then you run the risk of not paying overtime work properly. Since exempt employees are not eligible for overtime pay, you can easily end up not paying someone for their extra work when they should legally be paid as a non-exempt employee. This causes you to have to go back and fix your issue over the past few weeks or even months, depending on how long it took you to notice your mistake.

The other misclassification that is often made is marking someone as an independent contractor when they are actually an employee. Rather than a difference in overtime pay, this will cause an issue with the amount of payroll taxes withheld. This is another situation that will require a ton of additional work, which you likely want to avoid.

The solution to misclassifying employees is to hand over the payroll responsibilities to a professional back-office agency that offers payroll services. They will have the knowledge and expertise to successfully manage your payroll system without making any of these costly misclassification mistakes. This is a big part of why outsourcing payroll can save small businesses up to 18 percent of the time spent on managing payroll.

Improperly Calculating Payroll Taxes

Tax season is already stressful enough for small businesses, so the last thing you want is another reason to fear the IRS. However, this is exactly what will happen if you fail to properly calculate your payroll taxes.

While this is going to impact your employees, it is going to affect the government even more, which they won’t sit back and tolerate. Instead, you’ll get an unfortunate letter from the IRS letting you know that you owe them hundreds or even thousands of dollars due to improper payroll tax calculations. So before the IRS comes knocking, you need to make sure that you’re taking steps to ensure that your payroll taxes are completely accurate.

The best way to do this is to outsource your payroll responsibilities to a professional service provider who will understand the tax rates for things like FICA taxes, unemployment taxes, and income taxes. They will then withhold and pay out the proper amounts so that your staffing and recruitment business remains on the good side of the IRS.

Not Handling Bonuses Correctly

Bonuses can be a great way to motivate employees and keep them satisfied with the workplace. But when you pay these bonuses incorrectly, it causes more problems than solutions.

The important thing to remember is that bonuses need to be taxed at the same rate as a standard paycheck. If you fail to do this, then you’re going to end up being off on your payroll taxes, which we’ve already stated is a big issue with severe consequences.

But the government won’t be your only issue if you mishandle bonuses. Your employees won’t be happy either if any mistakes are made on their bonuses. In fact, it only takes two of these small payroll mistakes to cause nearly half of your entire workforce to look for another job. So rather than running this risk, it makes a lot more sense to put your payroll system into the hands of a professional back-office company.

Not Processing Wage Garnishments Correctly

This is a far less common scenario but there are some cases where you will need to deal with wage garnishments for a certain employee. Or there might even be multiple employees that you need to do this for.

If the government mandates that someone owes child support, alimony, student loans, unpaid taxes, or any other debts, then these are often going to be collected in the form of wage garnishments. But the responsibility of garnishing these wages falls on the small business. Therefore, you need to make sure that you are accurately processing the wage garnishments for anyone who the government has requested. And once the debt has been paid off, you need to make sure that you immediately stop garnishing the wages and return to paying the employee their full amount.

But since this is a much less common payroll situation, many business owners are not going to have the experience necessary to successfully navigate this process. That’s why it is better to rely upon a professional outsourced service that will act quickly upon receiving the government order and will know exactly what to withhold and when to stop withholding it.

Whether you have made one or more of these mistakes, you can get back on the right track with your payroll system by entrusting it with our team of back-office professionals at AdminAssist. We’re always standing by to talk with you about your payroll needs and provide you with the appropriate solution.