5 Common Payroll Management Mistakes US Businesses Need to Avoid

• Reading Time: 3 Minutes
• Published: September 29, 2020
• Last Updated: January 23, 2025

Running a business involves various challenges that cannot be faced all alone by an entrepreneur. It is not possible to operate your business single-handedly. Every entrepreneur needs a team of efficient employees who together make a business entity work. In return for their efforts, employees expect rewards. Along with the comfortable infrastructure and flexible working environment, an effective payroll management system is essential for keeping the employees happy and motivated.

An efficient payroll management system ensures adequate payment to the employees at the right time. If an organization’s payroll management is improper, it will lead to a feeling of distrust and dissatisfaction among the employees, which will negatively impact the organization’s image.

5 Common Payroll Issues that US businesses need to avoid

Delay in processing payroll:

The business needs to identify the number of days required for payroll processing. Every employee depends on payroll to make payments for the services undertaken for a living. Therefore, a delay in receiving payroll on time would lead to dissatisfaction among employees and, hence, demotivation, which would further impact the productivity of the employee. Therefore, payroll should be processed on time.

Incorrect payroll set-up:

Improper payroll setup leads to many errors. If an organization does not maintain the right payroll management system, it will lead to incorrect tax filings and payments, which will lead to penalties. Various laws and policies must also be considered while setting up the system.

Classification of employees:

The incorrect classification of employees can lead to penalties. It is critical to classify employees rightly, either as independent contractors or employees, as this classification is further reported to the tax authorities for compensation purposes.

Incorrect payment:

As the business operates in a complicated environment, errors in making payments are obvious. However, these errors can lead to improper payments to employees that would have a negative impact on the company’s goodwill. Incorrect payrolls can also lead to improper tax payments and overpaying an employee, which would disrupt the management of business finances.

Exclusion of rewards or bonuses:

All rewards, reimbursements, gift cards, and bonuses are considered taxable fringe benefits and subject to tax withholding. Also, employee expenses related to the business are reimbursed and should be submitted with proper documentation. A business is required to use a proper valuation method to calculate all expenses, rewards, gifts, taxes, etc., for effective payroll management.

Inadequate payroll management can lead to various consequences and penalties for any business organization. These penalties can be avoided only by properly managing the payroll system. Big and growing businesses commonly make errors in maintaining their payrolls properly, which makes it imperative for them to seek professional payroll solutions. There are many professional companies that provide payroll management services, which can help to reduce the burden of entrepreneurs regarding payroll issues.

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