4 Payroll Mistakes Small Business Owners Make

Growing a small business is exciting. From startup to growth strategies, there is never a dull moment! However, new growth can mean new challenges that can be devastating to a company in the form of fines and legal issues. One of the greatest areas of potential pitfalls for small business is payroll. Here are four common mistakes, and what you can do to avoid them.

#1: Incorrectly Classifying Your Workers

In today’s digital economy, it is quite common for small businesses to hire independent contractors and employees to meet their personnel needs. Each of these types of workers has their own set of payroll requirements. To avoid the ramifications of misclassification, visit the U.S. Department of Labor website.

#2: Paying the Wrong Tax Rates

Few things in business life are as complicated as taxes. Payroll tax rates change frequently, and a mistake on these can lead to owing back taxes, penalties, and interest. You’ll want to familiarize yourself with both the federal and state income tax rates for your individual state. If you have employees in multiples states, it may be beneficial for you to use a service to help you stay on top of tax rate changes.

#3: Running Payroll Too Late

Paying your employees and contractors on time is vital to ensure trust and avoid legal issues. Once you’ve established your pay frequency, you’ll need to set a schedule that accommodates the time it takes for your payments to process. If you’re running payroll yourself, having software that helps you stay on top of this practice can save you a myriad of issues.

#4: Mismanaging Cash Flow

Cash flow issues are one of the leading causes of small business failure in the United States. If you don’t have a cash flow budget, you run the risk of not being able to make payroll. You’ll also want to consider discussing a line of credit for your dedicated payroll account with your business banker.

Have you had a payroll issue in your business? How did you overcome it?