Mistakes happen to the best of us. But when they happen on an employee’s paycheck or with a payroll tax payment, it can result in frustration and monetary damages. That’s why it’s important to have a solid payroll processing plan in place to avoid potential errors and fees. To help you avoid payroll-related mistakes, DM Payroll Services has outlined five common mistakes made and how to avoid them.

Mistake 1: Improper Classification of Employees

Generally, workers are classified as either employees or independent contractors. Misclassifying a worker as a contractor rather than an employee can be a costly mistake to make. Internal Revenue Service (IRS) compensation reporting and benefits entitlement is dependent on the classification of the worker. Should the IRS determine you misclassified a worker, you could end up paying the employer’s share of payroll taxes, plus the employee’s share, penalties and interest. Be sure to follow the guidelines outlined by the IRS to classify your workers. If you still aren’t sure, its better to be safe than sorry. File a Form SS-8 with the IRS. They can help you determine how that worker should be classified for Federal tax purposes. In the event you realized you have misclassified a worker, the Voluntary Classification Settlement Program allows eligible employers to voluntarily reclassify workers.

Mistake 2: Miscalculating Overtime Pay

There are very specific guidelines that must be followed when determining overtime pay. A simple math error in the calculation can have large repercussions. While many businesses remember to pay their employees for the extra hours worked, some may not pay them the accurate wage. In other instances, employers have misclassified employees putting them as an exempt status when they should have been entitled to the overtime pay. Be sure to classify employees appropriately and track hours at both regular and overtime rates. Our system’s integration with a variety of popular time keeping programs unifies tracking time and payroll, so overtime pay is never missed.

Mistake 3: Omission of Key Income Elements

Many believe an employee’s income is only made up of wages and bonuses, but that is simply not the truth — especially when it comes to tax reporting. Most prizes, awards and fringe benefits are considered taxable federal income and subject to employment tax withholding. For example, gift cards are equivalent to cash and should be included in the taxable wages. Be sure to accurately calculate your employees’ taxable benefits into their income.

Mistake 4: Missing Payroll Tax Deadlines

Collecting, reporting and remitting payroll taxes are a key responsibility as an employer. Typically, a company is required to deposit taxes on a monthly or semi-weekly basis. As with any taxes, there are penalties for missing payment deadlines on your payroll taxes. A missed payment could result in deposit penalties, interest and even legal action. One of the easiest ways to avoid missing a deadline is to be organized and keep good track of your records. Working with DM Payroll Services, you don’t have to worry about ever making this mistake. We will file your taxes on your behalf with accuracy and timeliness.

Mistake 5: Failure to Issue Forms

Regardless of how you classify your workers, typically both W-2 and 1099 forms must be issued to its workers. Employees should receive a W-2, while vendors, including independent contractors who provide more than $600 in services annually, should receive a Form 1099. Both of these forms are required to be sent out by January 31st of the year following the tax year. Some entities, such as corporations, are not required to be issued a Form 1099. Failing to provide the correct forms on time can lead to unnecessary penalties and fees. Come every January, DM Payroll Services takes the headache out of W-2 and 1099 processing for our clients. We make sure year-end processing flows smoothly and all W-2s and 1099s are completed correctly, and most importantly, sent out on time.

DM Payroll Services is here to help prevent your business from falling victim to these common, costly mistakes. We will take all the burden off your internal resources to handle your day-to-day payroll and related tax reporting functions, with little efforts by your team. To learn more about our services and schedule a software demo, contact us today!