Payroll is a business process through which employees get paid. The process of running payroll, however, is more than just issuing out salaries. It involves tasks like calculating the earnings of different employees, ensuring they receive their payments on time and factoring out state and federal taxes. Payroll also covers the distribution of checks to employees, the financial records of employees, and the annual records of employee wages. While it seems pretty straightforward, payroll may be the most significant overhead expense for your business. Here are a few essential things to know about payroll in 2021.
Choose a Strong Payroll System
The system you choose can make or break your payroll operations. Having a solid system can make things easier. There are lots of complicated processes, and you want assurance that they are being handled well. This is especially important when your employees are in different states.
Some of the essential features to look for in a payroll system include payroll management, handling taxes, attendance and time tracking, extra financial management, and general forms. The ability to use a business credit card to fund payrolls is also crucial. For example, ADP offers this but Paychex doesn’t, which may factor into your decision making.
Tip: You no longer need to depend on handwritten processes of record-keeping. They can be complicated to track. Consider choosing a payroll system that focuses on automation. With the improvement in technology, you have many options.
Late Payroll Tax Payments Attract Penalties
Always keep track of your payroll taxes and know when they are due. The IRS assessed over $13.0 billion in extra taxes for returns filed past time in 2018. In the same year, they got more than $1.4 billion from delinquent returns. Unfortunately, many businesses lose a lot of money for failing to plan ahead of time.
Tip: Even though this payroll mistake is so common, you should be able to avoid it with a little effort in planning. With your’ lookback period’ in mind, ensure that you know precisely when to deposit your taxes.
The IRS will use your lookback period to determine your tax deposit schedule. The lookback period depends on your gross payroll tax liability for the 12 months completed on June 30 of the past year. The taxes reported in this period determine your payroll deposit schedule.
Pay Your Employees on Time
The state often determines how often employees need to be paid at the minimum. While you can pay them more often than recommended, you cannot pay less than required. The most common pay schedules are weekly, bi-weekly, and monthly. They make it easy to manage cash flow.
Tip: Consider publishing payroll dates annually. This way, you will always be on time, and employees can manage their expectations. If payroll isn’t paid on time, there may be significant federal and state penalties to face. The business owner may even go to prison.
Some Benefits May be Taxable
Offering benefits to your employees is excellent, but you must be aware that some of them are taxable in 2021. Take time to differentiate taxable benefits from non-taxable ones. Know the limits for different benefits and avoid infringing on IRS requirements.
Tip: Create a cafeteria plan where you can include the details of your agreement with employees. It may allow employees to pay for qualified benefits with pre-tax money. The most common eligible benefits include health and accident benefits, dependent care assistance, and adoption assistance.
Pay Your Former Employees Correctly
Employees’ last paychecks must be paid on or before the date of their next regular pay date. This should include unused vacation pay and overtime, if any. Note that these employees have the right to file a complaint against you. If they present their concerns to the state employment emergency, you may soon be dealing with a lawsuit.
Tip: It would be wise to pay your former employees overtime even if it was unapproved. You may face severe penalties if it is determined that you didn’t pay their wages.
Employee Classification Is Important
Employers must always ensure that their employees are classified correctly. This is a great tip to avoid payroll mistakes. In an office, there are two main classifications of people-employees and contractors. Employees then fall into exempt and non-exempt groups. Different groups have different obligations and benefits.
Human resource teams must take their time when classifying employees. A simple mistake will assign the wrong status and potentially cause legal problems.
Tip: Try to check and recheck different employees’ statuses as often as possible. Get a professional to evaluate the positions assigned to both exempt and non-exempt employees.
The issue of payroll and payroll taxes can be complicated for HR professionals. A lot goes into being compliant with tax regulations. If you aren’t careful, you may run into legal challenges. Some of the most important things to keep in mind include using a strong payroll system, identifying taxable benefits, and paying employees on time.