Top Payroll Mistakes and How to Prevent Them

Chosen theme: Top Payroll Mistakes and How to Prevent Them. Welcome to a practical, people-first guide that turns costly pitfalls into confident processes. We share real stories, proven checklists, and simple habits so your payroll runs smoothly. If you find a tip that helps, subscribe and join the conversation—your questions shape our next articles.

Avoid Misclassification: Employees vs. Contractors

Understand the IRS common law control factors, the ABC test in some states, and the economic realities standard. Document who directs work, supplies tools, and bears profit or loss to properly classify each engagement.

Avoid Misclassification: Employees vs. Contractors

A fast-growing agency labeled designers as contractors to move faster. An audit reclassified them, triggering payroll taxes, overtime back wages, and penalties. A simple pre-project questionnaire could have flagged the risk before onboarding began.

Avoid Misclassification: Employees vs. Contractors

Adopt written classification criteria, collect W-9 or W-4 forms appropriately, require contractor agreements, and schedule semiannual audits. Invite managers to submit role changes, then revalidate status before issuing payments or benefits enrollment.

Overtime and Exemptions Done Right

Compute the regular rate by including nondiscretionary bonuses, shift differentials, and commissions. Apply one-half the regular rate for salaried nonexempt employees using the fluctuating workweek only where legally permissible.

Overtime and Exemptions Done Right

Job titles do not grant exemption. Validate duties against executive, administrative, or professional tests and meet salary thresholds. Keep documentation, and recheck after role changes or when laws update at federal or state levels.

Withholding and Remittance: Taxes Without Surprises

Ensure every employee’s W-4 aligns with current life events, and sync state equivalents. Validate Social Security numbers, addresses, and local tax elections before each payroll, especially after onboarding or open enrollment changes.

Withholding and Remittance: Taxes Without Surprises

Know your deposit schedule—monthly or semiweekly—and set automated reminders. File Forms 941, 940, and state returns on time. Reconcile deposits to pay registers immediately to catch mismatches before notices arrive.

Timekeeping Accuracy and Rounding Rules

Set clear rules

Adopt neutral rounding within legal guidance, clarify when clocking is required, and define approval workflows for exceptions. Train supervisors to avoid off-the-clock work and respond promptly to correction requests.

Real-life example

A distribution center trimmed minutes at shift edges, assuming rounding would balance out. Complaints revealed a consistent underpayment pattern. An audit restored wages, retrained leads, and rebuilt trust through transparent weekly time summaries.

Handling Deductions, Benefits, and Garnishments

Sequence deductions correctly: pre-tax health, HSA, FSA, and retirement contributions before taxes; after-tax items and voluntary deductions afterward. Confirm annual limits and catch-up rules, then reconcile per payroll and cumulatively.

Handling Deductions, Benefits, and Garnishments

Understand priority order among child support, tax levies, and creditor garnishments. Calculate disposable earnings correctly and observe protected amounts. Communicate timelines clearly, and document responses to agencies to prove timely, accurate compliance.

Handling Deductions, Benefits, and Garnishments

Post a plain-language guide for each deduction on pay stubs. Encourage employees to ask questions and subscribe for benefit updates, reducing disputes while strengthening understanding of the value behind each withheld dollar.

Secure Records and Year-End Excellence

Retention done right

Map record retention by document type: timecards, payroll registers, tax filings, and I-9s. Store securely with role-based access, and test restorations quarterly to ensure backups actually recover complete, readable files.

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