While 89% of businesses have under 20 employees, this doesn’t mean you still can’t mess up their paychecks. In fact, the bigger the business, the more likely the checks are to be right and have no problems. Messing up employee paychecks can lead to lawsuits, bankruptcy, and government problems.
Here are 6 employee payment mistakes you’ll want to avoid.
1. Wrong Employee Classification
Classifying employees as independent contractors is a big no-no in the eyes of the government. Some employers will try to “hire” employees and then make them contractors instead.
If this isn’t something mentioned in the job description or talked about beforehand, your “employee” may face tax trouble and you might face legal trouble.
2. Overtime Wages
If you have an hourly employee, you’ll want to make sure they stay under 40 hours a week. Any time above that, even if it’s just a minute, means you’ll have to pay them overtime.
Overtime employees typically require 1.5 times their hourly rate.
3. Wrong Tax Rates
Every state, city, and country has different rules for taxes on income. Here in the United States, any employee you have that isn’t a contractor needs these three taxes taken out regardless of state.
These are Medicare tax, Social Security tax, and Federal income tax. Some states will also have a State income tax.
4. No Contracts for Freelancers
If you bring on an independent contractor, do not forget to have them sign a 1099 form. This ensures that they know how much they made from you and can file their taxes properly.
Failure to provide a 1099 form can result in penalties for both you and the contractor. This also ensures they can’t come after you.
To help decrease the chance of this happening, you should consider sending out paystubs throughout the year. It helps with both your and the contractor’s record keeping.
5. Missing or Late Payments
Avoid late payments is a must as an employer. You can lose trust and morale with your employees if you do. If paying employees on time isn’t a possibility one time or another, let them know ahead of time so they can prepare accordingly.
6. Poor Record Keeping
One of the most damaging mistakes you can make as an employer is to not keep records. Every time you send out a paystub, sign a contractor on, or hire an employee, put it in the records. You should know every hour they work, what tax rate you have them on, and any changes in pay that occurs.
Avoid These Employee Payment Mistakes
By avoiding these employee payment mistakes, you’re setting your business up for success. The more prepared you are with payments, the more likely you are to gain trust with employees and contractors. Happy workers almost always lead to an increase in productivity.Interested in learning more about running a small, growing business? Be sure to check out the rest of our blog where we cover all things business. Share this article with someone that you know that also runs a small business and has several employees.
