Payroll errors can lead to costly penalties, unhappy employees, and compliance headaches. To help you stay on track, we’ve compiled the most common payroll mistakes—and how to prevent them—based on insights from Forbes and TechRepublic.
1. Misclassifying Employees vs. Independent Contractors
Mistake: Treating contractors as employees (or vice versa) can trigger IRS penalties.
Fix:
- Follow IRS guidelines (Form SS-8 for disputes).
- Use Form W-2 for employees, 1099-NEC for contractors.
2. Missing Payroll Tax Deadlines
Mistake: Late tax deposits or filings result in fines (up to 15% for late payroll taxes).
Fix:
- Mark key IRS deadlines (e.g., Form 941 quarterly, Form 940 annually).
- Use payroll software (like SurePayroll) for auto-reminders.
3. Miscalculating Overtime Pay
Mistake: Paying 1.5x only on base wage (instead of total compensation, including bonuses).
Fix:
- Include non-discretionary bonuses in overtime calculations.
- Train managers on FLSA rules.
4. Not Keeping Accurate Records
Mistake: Losing track of hours worked, tax forms, or pay stubs.
Fix:
- Store records for at least 4 years (IRS requirement).
- Use cloud-based payroll systems for secure backups.
5. Overlooking State & Local Tax Laws
Mistake: Assuming federal rules cover state/local taxes (e.g., minimum wage, sick leave).
Fix:
- Check state labor department websites for updates.
- Use a payroll service with multi-state compliance.
6. Failing to Update Employee Information
Mistake: Sending W-2s to old addresses or using outdated withholding forms.
Fix:
- Audit employee data before December.
- Require annual W-4 updates (e.g., after major life events).
7. Ignoring Year-End Adjustments
Mistake: Forgetting to report bonuses, benefits, or fringe benefits (e.g., gift cards).
Fix:
- Review taxable vs. non-taxable benefits.
- Run a payroll reconciliation before January.
8. Manual Data Entry Errors
Mistake: Typos in hours, pay rates, or tax IDs.
Fix:
- Automate payroll with software (e.g., SurePayroll).
- Double-check entries before processing.
9. Skipping Payroll Audits
Mistake: Assuming payroll is error-free without reviews.
Fix:
- Conduct quarterly audits for discrepancies.
- Compare payroll reports to bank statements.
How to Avoid Payroll Mistakes
- Use payroll software (e.g., SurePayroll) for automation.
- Train your team on compliance updates.
- Consult a tax pro for complex issues.
Need Help?
Simplify payroll and avoid errors with SurePayroll—get accurate tax filings, direct deposit, and compliance support.
Sources: Forbes, TechRepublic
Disclaimer: This content is for informational purposes only. Consult a payroll specialist for legal advice.
