Payroll processing is one of the core responsibilities that come with owning a business. And the most important aspect of payroll processing is accuracy. After all, inaccurate payroll processing can lead to significant losses to your business. Worst of all, it can lead to costly tax mistakes.
Unfortunately, payroll tax mistakes happen all the time. Here are two common payroll tax mistakes that you need to know about:
Misclassifying your employees
There are two sets of workers in most organizations: employees and independent contractors. While employers have a duty to remit income taxes on behalf of their employees, independent contractors are responsible for their own taxes. Employee misclassification can lead to tax mistakes, which can be very costly.
Rely on the IRS’s three-prong test to determine if a worker is an employee or an independent contractor. By filing form SS-8, the IRS will notify you if a worker is an employee or an independent contractor.
Overtime miscalculations
Once you have properly classified your employees, it is important that you accurately calculate overtime where applicable. The Wages and Fair Labor Standards Act establishes the minimum wage as well as overtime guidelines and eligibility for private and government workers. Be sure to use the guidelines provided when determining overtime pay. Besides, the state of California has its own guidelines regarding overtime payment.
Acquaint yourself with the federal, California and local laws regarding overtime guidelines. Second, pay close attention to your employees’ work time. You can use a time and attendance tool to calculate your employees’ work hours.
Payroll tax mistakes can have far-reaching implications for your organization and employees. Find out how you can safeguard your rights and interests while litigating tax-related issues at work.