Saving cost is one of the prime objectives of most small business owners. Since hiring people to handle payroll jobs would mean an additional cost burden, many small business owners decide to handle the tasks themselves. But even though they may be brilliant in running a business, they may be prone to committing manual errors when handling accounting and payroll tasks on their own. An effective solution to this could be using a simple payroll software tool to process the payroll tasks with ease.
If you too want to take the DIY route, knowing some common payroll mistakes and avoiding them would help.
Here are the top 5 payroll mistakes
1. Faulty data-gathering and record-keeping
Many small businesses often fail to maintain their payroll records as a chronological history of their employment practices. No wonder that payroll errors are common occurrences in such organizations, starting from misapplication of pay rules and overpayment caused by errors in data entry, to inflation of payroll due to inaccurate calculation of hours worked and other clerical mistakes. A simple solution to this nightmare could be using payroll software which stores all employee data at a centralized place, and could be automated for all aspects of payroll including salary computation, statutory compliance (PF/ESI/TDS) etc.
2. Employee misclassification
By treating an individual as an independent contractor, a small business owner can avoid substantial expenses in the form of employee benefits and payroll taxes. But employers must be careful because wrongly classifying a worker as an independent contractor may invite a payroll audit and other troubles such as back taxes, interests and penalties.
3. Missing deadlines for tax deposit and filing
Every small business owner should have a calendar marked with all the deadlines with respect to tax filing and deposit. As the employer, you would also need to report the earnings and withholdings of every employee, payments made to contract workers, the amount of total withholdings and any other information that’s required by the law. However, many small businesses often miss these deadlines as they don’t stay focused on them or get busy in other business dealings. The result is that they have to pay considerable penalties for missing the deadlines for filing the required reports and depositing the payroll taxes.
4. Not remitting on time
When you deduct a certain amount from your employees’ salary as TDS or as contribution towards PF, ESI etc, the sum should be promptly remitted to the concerned authority. A delay in such remittance or the failure to remit the amount can subject you to some hefty fines. For those who have trouble keeping up with the deadlines of such remittance or find it hard to remember the date to remit, choosing an online payroll solution, where an automatic reminder can be set for remittance dates, would ensure never missing a deadline again.
5. Non-compliance to Central and State laws/rules
There are a number of legislation to enforce fair practices for wage, work standards, and social security. Shops & Commercial Establishment Act, Employees Provident Funds & Miscellaneous Provisions Act, Employee State Insurance Act etc., are some important regulations that small businesses may need to comply with. From time to time, the Center or the States can pass new statutes or regulations, which every business owner should comply with. It’s important to note here that overlooking a small statute or forgetting a statutory deadline often makes these businesses pay hefty fines and penalties, which could have been easily avoided with some caution.