Asure recently asked small business owners about their experiences with payroll processing and compliance. Do any of these statements from small business owners resonate with you?
“I’m a one-man band. Making sure I know what compliance issues are on the horizon is a major challenge.”
“It takes a lot of time to find errors in manually entered data.”
“I seem to spend a lot of time researching new laws or tax increases, which can be frustrating since they change frequently.”
When you’re running a business, time is a precious resource—but running accurate payroll is time consuming and complex. There are nuances in data collection that determine how to pay employees, manage benefits and leave, withhold taxes, maintain records, and send reports. According to our recent HR Trends Survey Report, the top five payroll processing challenges small businesses face are:
Keeping up with federal, state and local compliance recordkeeping (59%)
Manual data processing (55%)
Payroll tax compliance (51%)
Data security and payroll fraud prevention (35%)
Paying independent contractors and gig workers (30%)
When your time is already stretched thin and tax laws are constantly changing, it can be difficult to keep up with accurate payroll processing. As a result, 15% of the small businesses we surveyed indicated that they sometimes experience deduction errors or other issues on paychecks. Yet one wrong move and your small business could be facing noncompliance penalties, fines, and unhappy employees.
In this article, we’ll explore each of the five payroll processing challenges, the potential repercussions of payroll errors on small businesses, and how an automated payroll provider relieves the administrative burden.
Ensure recordkeeping requirements are always met
Maintaining accurate employee payroll records is critically important for compliance yet this is the biggest challenge for small businesses. The IRS advises that record retention is important to “monitor the progress of your business, prepare your financial statements, identify sources of income, keep track of deductible expenses, keep track of your basis in property, prepare your tax returns, and support items reported on your tax returns.” In addition to these supporting documents, the Fair Labor Standards Act (FLSA) requires payroll records to be kept for three years.
To be compliant with FLSA, businesses must keep certain records containing identifying information for each non-exempt worker including data about the hours worked and the wages earned. If your business is noncompliant, you risk hefty penalties. For example, a legal blog reported that in one Maryland district court case, the court found a nonprofit organization failed to keep proper timesheets for employees and did not pay the proper wages and overtime owed. The organization had to pay over $525,000 in back wages and penalties.
Using an automated payroll provider, you can protect your business from costly compliance recordkeeping mistakes like this. Automated payroll providers like Asure manage payroll and employment data for you and ensure record retention is accurate and compliant.
Automate data processing to eliminate errors
Manual payroll processing using spreadsheets or other basic tools is time consuming and prone to error. More than half of the small businesses we surveyed said manual data entry was one of their biggest challenges. As your business expands and adds employees, the level of complexity and risk using spreadsheets also increases since there is no sure way to stay up to date with regulations, protect confidential information, or avoid calculation errors.
Accuracy-related penalties are a big deal to the IRS. If the IRS discovers errors on your tax return due to negligence or if there is a substantial understatement of the taxes owed, your business will face a 20% penalty. Another example of a costly mistake is the failure to deposit federal payroll tax on time, which results in an automatic penalty of 15%. There are additional penalties levied by state and local authorities for late payments. Your business can also be penalized for submitting incorrect amounts—those penalties range between two and 10% of your total payroll.
Asure’s automated payroll solutions automate the payroll process so you avoid the manual data entry that so often results in profit leak and errors. Asure’s payroll and tax software handles all types of earnings and deductions—from wages and benefits to overtime, garnishments, tips and more—to ensure your payroll is completed correctly and quickly.
Say good-bye to tax rate worries
In our survey, more than half of small businesses found it challenging to keep up with tax compliance including multi-state issues like interstate tax rates. Even though it’s complicated, the responsibility to get it right falls on your business. The IRS will assess fines and penalties on your business if you get it wrong since payroll taxes withheld by employers account for nearly 72% of all revenue collected by the IRS. State and local taxing authorities have a similar motive.
Small business owners who make mistakes with payroll taxes risk potential civil and criminal penalties. For example, the Trust Fund Recovery Penalty is one repercussion for small businesses who do not collect, account for, or pay payroll taxes to the IRS on time.
With automated payroll providers like Asure, you don’t have to worry about tax compliance. Asure maintains federal, state, and local tax rates, tax brackets, and statutory limits for you. Our tax professionals continuously manage and update the tax management engine in our solutions.
Ensure data privacy and confidentiality
Another top payroll processing challenge cited by small businesses is data security. More and more data breaches an
d ransomware attacks are occurring than ever before. The reality is that payroll requires highly sensitive data such as social security and bank account numbers, home addresses, and pay rates—all of which expose your business and employees to risk. Small businesses need to establish clear privacy policies and a secure environment to protect payroll records and pay-related information.
According to the Ponemon Institute’s 2020 Cost of a Data Breach Report, data breaches cost American businesses an average of $3.86 million. A data breach could wreak havoc on a company’s brand, negatively impact production, or worse, force you to go out of business.
Payroll solution providers like Asure put information security controls in place and ensure regular vulnerability management scans, data encryption, and protected cloud storage. You can customize security rights to prevent unauthorized access and limit individual users to access only what you choose. Additionally, Asure is compliant with the strictest privacy standards, including the Health Insurance Portability and Accountability Act (HIPAA) and the General Data Protection Regulation (GDPR).
Avoid misclassification issues
In our survey, 30% of small businesses reported payroll challenges involving independent contractor and gig worker pay. Worker classification has been a hot-button topic for decades. Currently, the general rule is that “an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.” Businesses are urged to look at the facts in each situation and carefully consider three categories: Behavioral control, financial control, and relationship of the parties.
When an employee is misclassified, your small business may be held responsible for paying back-taxes and interest on state and federal payroll taxes as well as FICA taxes that weren’t originally withheld. Additionally, penalties can be imposed for failing to make timely payroll tax deposit.
If you want to ensure your policies regarding worker classification are up to date, Asure can help. Asure provides software and expert HR services to help your business build a great team, support the people in your organization, and ensure compliance.