Payroll preparation for my business, mistakes to avoid

Companies or businesses that lack correct internal control system management exhibit small and significant losses. This is because the lack of proper internal control leads to unnecessary expenses, severe errors in financial data, and above all, the loss of confidence of shareholders in the case of a large company. You can lose employees, production, and/or merchandise if it is an individual or small business.

That is why it is of utmost importance to prepare payrolls. Whether you have few or many employees, this action will facilitate the management of your business’s internal control. When payroll is not carried out in a business, mistakes will be made in employee payments. Therefore, the financial calculations of your company will be wrong. This payroll document lists your business’s employees; all the salary data are calculated for the staff.

To prepare the payroll, you must consider essential details, such as accounting and tax data. Also, it is necessary to pay attention to the updates of the normative changes in the time and according to the need of the personnel that works in your business. And to avoid problems, we will show you below the most common mistakes made when making payrolls for companies.

The most common mistakes to avoid when making payrolls for your business

All companies and businesses, regardless of their size, must prepare this vital document where the payments and the orderly accumulation of the data of each employee are calculated and reported, in addition to the total of the canceled salaries. Therefore, it is necessary to maintain control of the payroll registration, preparation, approval, and cancellation so that frequent errors are reduced.

For this reason and to improve the preparation of your business’s payroll, or if you have not yet started to do it. We will show you some common errors so that you can avoid them later in your payroll preparation.

  • Salary payments to non-existent personnel.
  • Working against the clock.
  • Payments for work not performed.
  • Failures in the modification of employees’ data.
  • Failure to modify labor data (periods, advances, overtime, judicial withholdings, and more).
  • Lack of verification of calculations.
  • Lack of updated personnel files.
  • Lack of authorization of payments made every month.
  • Incorrect accounting.
  • Scarce or outdated documentation of employees’ compliance with tax and social security obligations.

Tips for a correct payroll for your business

To reduce errors in preparing employee payrolls, it is necessary to consider separating the functions of the payroll process. In other words, the first step is to prepare the payroll, the second is to review and check each of the data and amounts, and the third is to make each salary payment.

It is important that from time to time, the person in charge of payroll and personnel evaluates and verifies the existence and updating of each employee’s files. This documentation is indispensable since it is the support of each person hired; part of the information of the employees that must be verified is:

  • Employment contract.
  • Employee’s admission report.
  • Proof of updated vaccination letter.
  • Evidence of the affidavit before the employer for income tax withholding discounts.
  • Proof of payment for the annual ornamental ticket.
  • Personal documentation such as identity cards, personal RIF, and curriculum letters, among others.

And finally, for the salary to be deductible from income and accepted fiscally as operating expenses, the Social Security payments per employee must be corroborated. For this, at least three hired persons must be required, as well as the corresponding backup forms for each one, the payment receipts, the salary book, and the income tax withholdings on the salaries that exceed the minimum living wage.

It is also essential to recognize that more accounting, administrative and fiscal controls, and even professional help are needed to ensure the accurate control and amount of salary payments. Regardless of the number of employees working in your business, it would be best if you had immediate availability of each daily record. Today multiple systems and programs facilitate the process of payroll creation, thus helping to carry out each requirement and keep the staff at ease with their jobs.

Remember that incorrect payroll handling will generate severe problems with the personnel and the Internal Revenue Service, better known as IRS. To avoid mistakes and inconveniences such as late payroll payments, employee complaints, and so on, as a business owner, you must verify that the human resources department is doing its job faithfully and effectively. That is why we will show you below some points to comply with that will help you to keep a proper payroll according to your business.

1. Select the type of salary you will have for your workers, fixed or hourly rates.

Setting a salary rate for both small and large companies will help to calculate payroll better. Staff who receive a salary do not each receive different amounts, which generates an expendable and stable cash flow for the business. This makes creating an overall budget and taxes much more accessible.

However, not all businesses find it profitable to pay in this way. They prefer to cancel the corresponding payments for hours worked. For this, you need to include payment fluctuations in the payroll planning and check the business line, income capabilities, and employee profiles. By doing this, you will know the liquidity required to meet tax and salary payments. In the case of businesses that prefer to pay by the hour, the U.S. business consulting firm Second Wind Consultants, which specializes in human resources, states that the acceptable level for salary expenses is from 30% to 38% of sales.

2. Establish a payment calendar or schedule

After identifying the previous point, the next step is determining the salary payment period. This refers to a calendar or schedule of payments to staff, which is based on selecting a type of frequency where costs can be made weekly, biweekly, or monthly. Most established businesses are set to pay on a bi-weekly basis.

Although the option of paying weekly is not discarded by many, as compared to monthly payments, which are no longer as standard. After establishing that period, as a business owner, you should ensure that your staff is paid on time to the best of your ability. In this way, you will be able to develop a steady, consistent and predictable payroll process.

3. Classify personnel

It is vital to classify or categorize the personnel working in your business. Many of them may not have the same hierarchy or job position; therefore, they do not have the same salary; an example of this is the position of a salesperson and a supervisor as well as those who work full-time, those who only work part-time, or in the case of independent contractors and interns. Because of taxes, employees must be organized into categories.

4. Simplify the payroll system

Simplifying your business’s payroll system is just a matter of making administration more practical and accessible. For example, in a company with less than ten employees working, it is advisable to develop a payroll system that is not complicated but facilitates the business owners or managers to comply with everything that concerns them.

A more straightforward way to simplify the system is to give the responsibility for this service to the business’s accountant or to outsource it to an expert firm. Many of the accountants themselves offer this service as it is a very fundamental part of taxation. Regardless of the decision, the important thing is to make this service as simple as possible to manage so that the owners or managers can focus on more critical business matters.

5. Order each record

One of the best tips to keep control in this area in order is as long as you keep the records of each payroll organized, you will be able to find the information you need. In addition, federal and state laws require businesses to keep records of their personnel in real-time and for specific periods. A clear example is the recording of W-2 and W-4 forms, vacation time, tax deposits, and employee benefits, which must be at your fingertips and in complete order. Translated with (free version)

6. Make federal and state tax payments automatically.

An efficient way to save effort, work, money, and time are to allow payroll software to automatically make state and federal tax payments. This great idea is applied by several companies and businesses, where the most common payroll errors are avoided.

7. Do a plan about benefits and corresponding increases

The idea of a company or business having employees is not only for its growth but also for the advancement and welfare of the people who work for that business to achieve its goals. It is important to note that taking care of the interest of employees is also a contribution to the company because while the staff receives benefits and raises regularly will be more committed, loyal, and pleased with their work.

As a business manager, planning must focus on improving all aspects of the work team and strengthening the company, company, or business. When this is planned and implemented, the team’s productivity will increase, generating even more productivity in the company.

There are various ideas to improve people’s well-being in a job. Perhaps in some cases, it will not be possible to increase the salary or income of employees. But they can be rewarded from time to time with significant benefits, such as health insurance improvements, links to bank loans, technological devices such as laptops, tablets, and phones, and food supplements, among many others.

8. Verify if each employee requires an EIN.

Certain states require employees to have an Employer Identification Number or EIN. This number is needed to process taxes; mostly, some entities and businesses have an ID number. To apply for one is through the IRS website.

9. Develop and stick to a budget

To obtain a healthy financial status for your business, it is essential to plan under a payroll budget. You must include all payroll expenses, including salaries, tax contracts, payments, wages, benefits, social security, medicare, unemployment taxes, etc. Planning the costs and investments of your business will allow you to regulate the stress and help maintain better management of the accounting books.

10.  Avoid preparing payrolls manually.

It is advisable to use specialized software that helps with the agility of the payroll process. This will help to make accurate calculations and avoid errors caused mainly by doing the payroll manually.

11. Properly manage resources

Any financial resources destined only for payroll should not be used to solve any other need of the company or business. Doing so will result in the delay of payments to employees and their distrust.