As a small employer, you face additional legal requirements and agency oversight that non-employers don't. This calls for additional diligence to ensure the accuracy of your payroll and its records.
To help you be confident that you can meet the challenge, here are 4 things to verify in your employee records.
Classification. It may surprise new employers that there are rules about who can be classified as an employee and who should be classified as an independent contractor. Basically, this depends on the level of control you have over how, where, when, and by whom work is completed. The IRS provides guidance on proper classification. This is important because improperly classifying independent contractors can result in fines, penalties, back taxes, and other agency audits.
Employee Information. Don't rely on employees to automatically verify the accuracy of their information on paychecks, Forms W-2, or other paperwork. When creating new entries, double-check the spelling of all names, the data entry for Social Security numbers, pay rate information, and addresses. Remind employees to look over their information at least twice each year to prevent long-term errors from adding up. Incorrect addresses mean wasted money on mailings, Forms W-2 printing, and even required documentation arriving late.
Tax Deposits. Employers are required to deduct payroll taxes and remit them to the IRS, state tax agencies, and other labor departments. You should ensure that your required payroll deposits are being calculated correctly by the payroll software and that the money is being sent on the required schedules. Your payroll service may even be able to send the remittances automatically. Check the related accounts in your chart of accounts, and you should see that they do not reflect a carried balance and are being reconciled regularly.
Record Retention. It's vital to keep required payroll records for the appropriate length of time, but you also need to purge on a timely schedule. Many employee records need kept for years or even permanently, while payroll reports and backup documents can often be destroyed in a shorter period. Work with your payroll service and accountant to determine a retention schedule and method of disposal. Keeping records too long could result in added liability in the event of legal action or an audit.
Having accurate payroll records will help you control costs both in-house and with your payroll service. And you can have confidence knowing that your business is avoiding unnecessary risk with government agencies. For more information, contact companies like Watson & Company Inc.