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The Major Problems with Payroll for Small Businesses

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Payroll may seem like an easy thing to do, but it’s actually quite complex. Not only do you have to factor in all of the usual taxes and deductions, but you also have to make sure your employees are getting paid on time, which can be difficult if you’re juggling multiple clients with different pay schedules (not to mention what happens if one of your employees quit or gets fired). Here are some of the most common problems that small businesses face when handling payroll.

1) Irregular Cash Flow

The costs of payroll can be a drain on small businesses, especially if there isn’t enough work coming in to cover employee salaries. But too much work can be bad, too—if you get so busy that you’re leaving employees idle while they wait for more jobs to come in, payroll costs can skyrocket. The solution? Determine your sustainable capacity and keep some breathing room around it. This may mean letting go of some workers when business slows down or providing some temporary positions rather than hiring full-time help.

2) Noncompliance & Late Filing Penalties

Late or missing payroll taxes can trigger some serious problems, which will make your life much more difficult. Noncompliance penalties are assessed when tax payments are late. These penalties can be costly (about $100 per day, per quarter), and they compound quickly; if you’re two weeks late, that’s 200 days of penalty assessment. You’ll also be charged interest on unpaid taxes (the rate is based on federal interest rates), and interest accrues while you attempt to pay your taxes in full—and even while you apply for an installment agreement or seek an Offer in Compromise.

3) Loads of  paperwork

Of course, if you have a number of employees on your payroll, you’ll be looking at a number of separate paychecks, each with its own due date and amount. That’s a lot of forms to fill out every two weeks! In addition to being time-consuming, all that paperwork also puts your business at risk of making an error. When multiple people are involved in compiling each paycheck, it’s likely that someone will make a mistake somewhere along the line—and that means more work for you when you get audited. Make payroll simpler by automating it via software or apps. Some payroll processing software systems offer other services that include HR, recruiting, and onboarding and will help you manage everything in one place. Rather than cutting checks and filling out numerous forms every payday, you can set up online payments for workers who use direct deposit.

4) Penalties due to payroll errors

A common payroll-related penalty is a failure to file a charge from your state, which can be up to $50 per employee per quarter. It might seem like a low number, but multiply that by 10 employees and you’re looking at $250 in fines. This type of fee is usually applicable if you file late or don’t file at all. Additionally, if your company loses track of its taxes, you could be charged an additional 5 percent fine on what you owe for underpayments made during the previous year; again, depending on how many employees there are, these fines can add up pretty quickly.

5) Maintaining Records

One of the first and most important things to figure out when you start a business is what kind of record-keeping system you’re going to use. Having good records makes payroll easier and ensures that tax time goes as smoothly as possible. When starting a business, I recommend using small business payroll software. It is simple to set up and offers all of your basic payroll needs. They also sync with mobile devices so you can quickly enter view your tax, paychecks, Time off online.

6) Missing payroll deadlines

If a business has too many employees, it can sometimes struggle to meet payroll deadlines. With that being said, if a company only has a few employees, then it may have issues in regards to making sure that they’re paid on time or even at all. If an employee isn’t getting paid regularly, you can almost guarantee that they won’t be working for you much longer. That type of turnover is more costly than simply paying them on time and properly; moreover, it shows very little loyalty to your current employees and takes some credibility away from your company.