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Avoid These Payroll Errors By Kelly J. Bullis, CPA

Updated: Feb 21, 2023

There are few mistakes a boss can make that will get a more emotional response from an employee than messing up their paycheck. Right behind the upset employee stands the government, equally upset if they don’t get their fair share.

None of the above aggrieved parties care about how the business owner probably didn’t get paid or only took a small paycheck due to cash flow limitations. There’s a better chance of getting them to shed a tear while watching a Shrek movie.

So how does one avoid having the upset mob standing at their door? Avoid making common mistakes and you will at least reduce the size of the mob.

1. Misclassified workers: The IRS has a vested interest in considering everybody as an “employee” – they get payroll taxes withheld that way. The reality is that there are some workers that truly are “independent contractors” (no payroll tax withholding). Another misclassification error is not reporting wages by job description category for workers comp. Office related wages are charged at a MUCH less rate than construction related wages.

2. Poor data gathering: Messing up names, Social Security numbers, etc. When setting up the employee in your payroll system, make sure you spell their name correctly, use their current address, and verify their correct Social Security Number. This simple mistake happens a lot.

3. Errors in W-2 and 1099 forms: With the new health care reform, this job just got even more complicated. It’s not just about reporting gross wages and taxes withheld any longer, but other items such as HSA contributions, health

insurance, retirement contributions, cafeteria plans, etc. that can really ruin your day. You need to be tracking all of this stuff now so you can report it correctly at the end of the year.

4. Mishandled garnishments: In this day and age, it is common to be required to withhold funds and forward them to some entity (usually government related); child and spouse support are the most common. In addition to making sure you take out the correct amounts, make sure you timely pay over the garnishments you withheld. Nasty letters from courts can really ruin your day.

5. Missed tax deposits and filing deadlines: This is the motherload of mistakes. It awakens the “sleeping dragon,” aka the IRS. Once awakened, it can lay waste to your business. Do not kick this sleeping dragon. Make your deposits timely and file all your payroll tax reports accurately as well as on time.

For help on avoiding these and other payroll related mistakes, contact your CPA.

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