5 Common Payroll Accounting Mistakes and How to Avoid Them
The payroll of a company is comprised of all financial records of salaries for an employee, wages, bonuses and deductions. In the world of a Naperville certified public accountant, a payroll is the total amount of money a business pays to employees over a set amount of time.
Payroll plays a major role in a company for several reasons. From an accounting point of view, payroll accounting is crucial because payroll and payroll taxes considerably affect the net income of most companies and they are subject to both federal and state laws and regulations which include penalties for late or erroneous payments. From a business ethics point of view, payroll is a critical area as employees are naturally very sensitive to payroll errors and irregularities ; good employee morale requires payroll to be paid timely and accurately. The main priority of payroll accounting is to make sure that employees are paid properly and on time with the correct deductions, and to ensure the withholdings and deductions are remitted in a timely manner. That includes salary payments, deductions from a paycheck, and tax withholdings.
Although there are plenty of possibilities for mistakes, below are 5 of the most common payroll mistakes to avoid.
1. Incorrect Set Up
A common error results from not setting up the payroll properly. Even if wages are calculated correctly, and payroll done on time each period, you’ll still end up with errors if your system was not set up correctly with proper business registration, federal, state and local tax withholdings and classification of employees. To file the proper amount of taxes, you need to understand the law and how much to withhold from employees for federal and state income taxes, Social Security, Medicare and other applicable state and local taxes. In addition, you need to know how much you, the employer, will pay in taxes. It’s a lot to keep straight, and having your system set up properly in the beginning will get you started on the right path.
2. Failing to Record Transactions
Even though this seems like an obvious must, things can slip through the cracks when in a crunch. For example, many business owners, who are often pressed for time, will issue a manual check to an employee and then forget to record the check in the payroll processing system. This leaves tax deposits in error and the books off balance. Make sure to take care when handing out bonuses, these will easily get overlooked in the payroll system.
3. Late and Incorrect Deposits
Assuming you didn’t make error #1 or #2, and you’ve withheld the proper tax from employees and contributed the proper amount from the company, you still need to know the appropriate time and frequency to make the deposit. Monthly? Quarterly? Which form? Electronically? Have you hired an accountant to make electronic payments?
4. Miscalculation of Total Hours and Overtime
Although it sounds obvious, it can become cumbersome and confusing. Every fraction of every hour must be added up as previously agreed with employees. In addition, rules about overtime must be clear and strictly followed. Employees know, or think they know, how much time they should be paid for. Any disagreements between an employee and employer, whether its about over or underpayments can be a troublesome and awkward situation that affects morale. Be clear up front, and be certain to keep and enter accurate hours into payroll.
5. Failing to Pay Your SUI
When your business is notified of a new SUI rate, the payroll system must be updated with the new information, but usually not right away. Unfortunately, the notification is typically received in advance of the time to make the change. The key is remembering to make the change at the appropiate time.
If you are on the hunt for an excellent tax accountant in Aurora or somebody to take care of your bookkeeping needs in Aurora then this accounting firm must be your very first call.
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