Every company needs a solid payroll system. Even the tiniest mistakes made when processing payroll can result in hefty fines.
Train your team in basic payroll strategies to keep your organization compliant. Here are 5 essential tips for understanding payroll best practices.
- Talk to an Expert
The first thing you need to do when learning about payroll best practices is to talk to an expert. A certified public accountant can help you find the best software for your business.
Software is important because it means you can automate tasks like creating paystubs online. Without professional payroll software, you’ll be stuck dedicating man-hours to performing calculations manually.
If you have more than a few employees, this time can quickly add up. Invest in a good CPA to get your business set up with a simple system that’s easy to maintain.
- Keep Hiring Records
It’s very important to keep W-4 and I-9 forms on hand for every employee. Create a well-organized filing system so that you can respond quickly to notices from local and federal tax agencies.
Failing to respond can lead to tax penalties even if the information you originally provided was correct. When you’re audited, you have a certain amount of time to respond before the IRS assumes there is no supporting documentation for your claim.
Are you paying your employees enough? Know the Fair Labor Standards Act (FSLA) so you can catch any mistakes in employee wages.
FSLA was created in 1938 to ensure workers receive a livable wage. The current minimum wage is $7.25 per hour for hourly employees. Employees that receive tips have a minimum wage of $2.13 per hour.
This is a federal law but there still might be other state laws and regulations to follow. For example, the state of California has a higher minimum wage than the federal minimum.
Your state’s rules supersede federal regulations. Always check for updates to state rules to make sure you’re paying your team correctly.
- Employees vs Contractors
It’s important to understand the difference between employees and contractors when processing payroll. Employees are required to have certain deductions withheld from their paychecks.
Contractors have the freedom to pay taxes and other deductions at their own pace. Ensure you maintain appropriate paperwork for contractors in case you’re audited.
If a contractor is incorrectly classified as an employee, you might have to pay fines and backpay penalties during an audit.
- Ongoing Training
Your entire payroll team needs continuing education to remain on top of constantly changing legislation. You can hire an outside consultant or sign up for online payroll classes to keep everyone engaged.
The more everyone knows the better your team can collaborate when problems arise.
How to Understand Payroll
Learning a new payroll system isn’t an overnight job. It’ll take your team time to train and practice using any system you choose.
To reduce the possibility of errors, hire an accountant to get your payroll software set up first. Once you’ve automated your payroll needs, train your team in using the software with a payroll class or outside consultant.
Fewer mistakes mean you can skip expensive fines caused by calculation errors. For more information and tips, visit our blog for updates.