Four Simple Payroll Mistakes Every Company Makes and How to Avoid Them

October 23, 2017

Despite everyone’s best efforts, common payroll mistakes plague every company. With the IRS devoting extra resources to close the tax gap, companies must be more vigilant than ever in order to avoid costly employment tax penalties. At Payroll Specialties NW, we have highlighted some common mistakes that could hurt your business:

  1. Worker Classification: Typically, workers are either classified as employees or as independent contractors. This classification is very important, because benefits eligibility and tax liability are contingent upon a worker’s status

The Mistake: Classifying an independent contractor as an employee or vice versa, not providing an employee with the proper benefits, and not withholding and paying taxes on an employee’s wages.

The Solution: Become familiar with the State and Federal regulations regarding independent contractors. When in doubt, before hiring an independent contractor, consult a human resources specialist or an employment law attorney in order to verify that your contractor actually meets the Bureau of Labor and Industries and IRS independent contractor qualifications.

  1. Form 1099: All Companies are required to issue Form 1099s to vendors who provide $600 or more in services. Companies are not required to provide 1099s for a corporation, however.

The Mistake: Not requiring a vendor to fill out a Form W-9.

The Solution: Companies should have all vendor paperwork on file, know how much all vendors are being paid, and be familiar with the organizational structure of each vendor.

  1. Failure to Deposit Taxes on Time: Companies will be subject to late fees if they do not deposit taxes on time. Depending upon the amount of the tax liability, taxes need to be deposited as infrequently as once a year or as frequently as the business day following the pay date.

The Mistake: Depositing taxes late.

The Solution: Companies should keep an up-to-date record of taxes, be familiar with their deposit schedules, and make regularly scheduled deposits in order to avoid penalties and interest.

  1. Travel and Expense Reimbursements: Short-term travel reimbursements for employees may or may not be taxable. If the reimbursements continue for more than a year or if an employee’s permanent residence is not in the same place as his permanent work site, the company-provided travel benefits may not be considered part of the employee’s income.

The Mistake: Not counting a worker’s reimbursements and benefits as income.

The Solution: Make sure that all expense and travel reimbursements are made under an accountable expense reimbursement plan. Track all employees’ expense reimbursements and reularly audit employee reimbursements.

These tips are designed to help your company avoid penalties and operate smoothyl. Please contact us with any questions or to inquitre about our services.