The last thing you want to do as an employer is to make pay stub mistakes. But without knowing the various ways in which errors can occur, it will be challenging to ensure your payroll is error-free. So, check out the following mistakes you need to avoid.
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Miscalculating Overtime Wages
You never want to make any miscalculations with payroll. After all, your employees are the nuts and bolts that keep your operations running, so it is vital they get paid the right amount. It should not be challenging to calculate regular wages, and you can use a pay stub generator to easily create pay stubs instantly. However, things get a little trickier with overtime pay. Because the wages are a different rate to regular pay, you could easily miscalculate overtime wages or even completely forget to add overtime to the pay stub. The FLSA states that overtime must be paid at a rate of 1.5 times the rate of regular wages for any time worked above forty hours per week, although exact overtime wages laws do alter from state to state. Paying the wrong overtime amounts can be a costly mistake because disgruntled employees can file complaints with the Department of Labor. As a result, you could have to pay a $1,000 civil penalty fee in addition to the overtime wages.
If you have employees who work directly for you and you hire independent contractors as well, you do not want to mix up the two types of workers when it comes to completing pay stubs. You do not have to pay contractors the minimum wage or overtime pay as you must do with actual employees. You do not withhold employment taxes from contractors’ wages either. If you misclassify an employee as a contractor, he or she could miss out on wages owed and tax revenues. Not only is that bad news for the employee. It is also bad news for you because you will have to pay back pay as well as penalty fees and interest.
Paying Incorrect Tax Rates
When calculating wages for pay stubs, you need to be up-to-date with the latest tax rates. They change all of the time, so if you are not aware of the most recent tax rates, it can create payroll issues. When you pay the wrong tax rate, you will end up owing taxes and have to pay penalties and interest. So, make sure you always know the current tax rates for different types of taxes, including federal income tax, Social Security tax, and Medicare tax.
Processing Payroll for the Wrong State
If you run a large company where you have a store in one state and your corporate office in another state, or if you run an e-commerce store with contractors based in various states, you need to ensure you process the payroll for the right state. Each state has different laws and rules concerning wages. You need to ensure you abide by the rules for the state where your employee works, not the state where your headquarters are based.
Not Paying Wages on Time
If employees do not receive their pay when they should, their trust in your company could be destroyed and they could be left in financial trouble. Not running payroll on time can also make your company non-compliant with state pay frequency requirements, which could result in you having to pay penalty fees. When running your payroll, ensure there is enough time for the payments to process. For example, if it takes three days for a direct deposit to be processed, ensure you run the payroll three days in advance of the payment date.