Once a business owner grows to the point they need to hire even one employee they are subject to a multitude of rules and regulations. The following are the problems that cause the most problems for new employers:
- Failure to make timely 941 deposits. The quickest way to get into trouble is to fall behind on your payroll taxes is the most common reason for business bankruptcy filings for small businesses. But it is really just a symptom of many different cash flow problems. The requirement to pay the taxes with every paycheck is one of the biggest advantages of outsourcing your payroll to ADP or a bank like Wells Fargo.
- Name or Social Security number errors. Be sure to get the employee to fill out a W-4. But it is also wise to use the Social Security Number Verification Service (SSNVS) which is available for free at http://www.socialsecurity.gov/employer/ssnv.htm.
- Employee misclassification as contract labor. One of the most common mistakes made by small business owners is not properly classifying workers as employees as employees rather than 1099 contractors. Due to the high fines related to misclassifications it is critical that the business owner classify employees correctly. Click here for more information on this vital subject http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F.
- Not paying overtime properly. The Fair Labor Standards Act (FLSA) requires you to pay time and half for overtime hours worked in excess of 40 hours per week on all non-exempt employees. Overtime does not need to be paid for working on weekends or holidays, unless this puts the employee over 40 hours (state laws may vary).
- Court ordered garnishments and child support. Most common errors are 1) ignoring them, which leads to a liability plus fines, and 2) firing an employee who has garnishments. Title III of the Consumer Credit Protection Act prohibits an employer from discharging an employee because of garnishments.
- Failure to file payroll returns on time. Many small business owners are hit with large penalties because they file their quarterly payroll returns late. Another good reason to outsource the payroll reporting process.