Is Your Business Paying for These 4 Payroll Mistakes?
Even if tax regulations didn’t change yearly, doing payroll would still be confusing. With different types of employees, varying benefits, and individualized wage requirements, the details are enough to make your head spin. Now add to that the rules that govern how employees are paid are constantly in flux, and you have a recipe for confusion. Payroll must keep up or deal with the ugly consequences of these common payroll mistakes:
Classifying Employees Incorrectly
Knowing the difference between an employee and independent contractor can save you a world of trouble. The classification dictates how workers are paid, how it gets reported to the IRS, what kind of taxes they pay, and if they are eligible to receive benefits. Employers can fix an incorrect classification through the Voluntary Classification Settlement Program, but they may have to pay 10% of their employment tax liability for the year.
Messing Up Overtime Pay
There are legal standards that payroll must follow when calculating overtime pay. If an employer miscalculates or defines an employee as exempt when he or she is not, the business can be headed into sticky legal territory. In fact, there has been a rise in lawsuits regarding overtime pay during the past few years.
Not Issuing 1099s
When independent contractors or vendors provide more than $600 in services to a business, the business is required to issue a Form 1099. Often times, businesses don’t send these forms out on time or forget to send them altogether. This usually results in tax penalties for the employer.
Not Reporting Expense Reimbursements
Just to make things a bit more tricky, there are specific standards which define whether employee expense reimbursements are reportable or not. If expense reimbursement doesn’t fall under an accountable plan, it needs to be reported as taxable wages. Many payroll workers, however, don’t know if the reimbursements fall under an accountable plan or not.
Here’s how you know:
- Expenses are only reimbursed when the expenditure is connected to business.
- Expenses are properly accounted.
- Left over reimbursements get returned to the employer.
Any expense reimbursements outside of an accountable plan must be reported as taxable wages.
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