Payroll is a critical function for businesses of all types and sizes. Payroll processing and tax compliance require a tremendous amount of attention to detail to ensure accuracy. With an entrepreneurial spirit and focus on growing your company, your time is already stretched thin and it can be difficult to stay up to date with ever-changing, increasingly complex payroll tax laws. Business leaders also must figure out how to stay a step ahead of fraudsters and protect sensitive data from a breach that could sabotage everything you’ve worked so hard to build.
Unfortunately, compliance with payroll tax requirements is problematic for many businesses. According to the FY 2018 IRS Data Book, the IRS assessed nearly 5 million civil penalties involving employment taxes.
The demands of managing a growing workforce create challenges like more complex payroll administration and new compliance responsibilities. It’s not easy keeping up with all the nuances that go along with growth—whether it’s the size of your workforce or market expansion. From registering with the proper agencies and meeting individual state compliance rules to ensuring required forms are on file for each and every employee, payroll and tax become more and more burdensome and time consuming.
Common payroll and tax challenges
As a business grows, so does the complexity of its payroll data. You may have to make more frequent adjustments. It may take more time to balance, reconcile, and manage records for a growing worker base that requires different salaries and payment methods. On top of all that, you must ensure your business is up to date with tax code changes and stay compliant with new requirements—even those from which you may have been previously exempt.
Whether it’s a miscalculation, missed deadline, or overlooked regulatory change, not being in the know is not an acceptable excuse. Mistakes can result in costly penalties, fines, and unhappy employees.
According to SmallBizDaily, growing businesses face these four payroll challenges:
The impact of payroll and tax missteps
Entrepreneurs and business owners often juggle many responsibilities and perform job duties from chief of operations or marketing officer to sales and financial lead. In fact, one survey revealed that only 23% of smaller businesses had a financial professional on staff to handle financial records, much less payroll and tax duties.
Smaller business owners, or executives leading businesses through periods of growth, often choose to manage finances or do payroll themselves to save money. However, as leaders attempt to manage changing tax laws, market demands, and workforce needs, it’s easy to make costly and damaging payroll mistakes.
For example, failure to deposit federal payroll tax on time results in an automatic 15% penalty. There are additional penalties levied by state and local authorities if those payments are late. Your business can also be penalized for submitting incorrect amounts—those penalties range between two and 10% of your total payroll.
Another costly mistake that can hurt growing businesses is the misclassification of workers. Misclassifying employees as independent contractors incurs retroactive payroll taxes and penalties.
In a recent survey of larger companies with globally mobile employees, 35% of respondents said that the accuracy of withholding calculations for regular or supplemental pay is their greatest challenge. These companies also cited issues with accurately reporting taxable compensation to local taxing authorities and streamlining year-end processing procedures.
Avoid these four payroll tax compliance issues
The cost of payroll and tax errors can have a detrimental effect on businesses, especially those with less than 500 employees. The cost of compliance is just as daunting. To maintain accuracy, manage timely payments, and stay compliant, business leaders can turn to payroll software and services that work as hard as they do. Payroll and tax services automate all the moving parts associated with wages, benefits, and garnishments to tips, direct deposits, tax codes, and jurisdictions to help you avoid compliance issues such as:
Focus on growth—leave the admin and compliance to Payroll Medics
When your business is growing, you need software and services that work as hard as you do. It takes many hours of painfully detailed work to create and keep accurate records, determine proper withholdings, make timely payments, and stay in compliance.
If your payroll and tax compliance burden is becoming increasingly time consuming and complex, Payroll Medics can help.