As a QuickBooks Certified ProAdvisor, I am frequently hired to set up, or straighten out payroll problems. I think I have dealt with just about every conceivable problem that can happen with payroll. Since payroll represents a serious chunk of the company budget, it’s worth doing it right.
Whether a business owner elects to perform payroll processing in house, or through an outsourced payroll service, payroll me can become a nightmare unless you avoid common mistakes.
First of all, I lean heavily toward a company maintaining control over its own payroll processing, for the following important reasons:
- It cost extra money that you really don’t have to spend when outsourcing your payroll processing. Productivity time is lost from having to learn the cumbersome payroll processing online software that is down most of the time, not to mention a security risk for your employee’s identity data.
- The payroll processing company makes sloppy mistakes, which cause you to lose creditability with your employee and spoil the moraleof your company. Who wants an erroneous paycheck?
- The payroll processing company requires that you have your cash available days before the payroll is actually due in order to make money on the float. This float should be yours to earn interest on, or use in your business up to pay day.
- You have to spend double time dealing with payroll figures, first you have to go online with the payroll co. and enter the hours, or other numbers, and then you have to wait to decipher the complex reports to post to your QuickBooks. Why not save money and time by doing your payroll directly out of your QuickBooks with all of the same conveniences of using the expensive outsourcing company? Why do double the work?
- The outsourced payroll processing company says that they will pay any penalties (but not the tax) if they make a mistake on your Federal and State Payroll tax filings. Why not avoid that by printing and mailing your own forms right out of QuickBooks? Who needs problems with the IRS?
- You are required as the business owner, by Federal Law, to keep all financial records in a concise manner. It looks bad in an audit if you can’t furnish consolidated Profit and Loss with all of your income and expenses (esp. payroll tax and wages) on a single report. In an IRS audit, shuffling the confusing reams of the payroll processing company papers around makes you appear confused and not in control of your business operations.
- Cancelling, or changing a particular paycheck or payroll file can be a nightmare with the payroll processing company. When you have control in house, it’s a breeze.
- Getting anybody on the phone to help you with a problem is hard. There is a advanced inflexibility when you outsoure your payroll. Most of the people are completely overwhelmed and cranky to deal with.
To avoid problems, consider these points when setting up your payroll in QuickBooks:
- What kind of employee is this? Salary or hourly? If hourly, what is the OT rate? Set up payroll items correctly!
- Do owners get a salary plus draws? What’s the difference and how do you pay these types of compensation separately for tax considerations? How do you get QuickBooks payroll reports separately from other financial reports?
- Go to www.irs.gov (keyword 1099 Contractor) to learn more about who can be a `1099 Independent Contract or vs. an employee. Never assume that a person is a 1099 contractor without reviewing the rules. You can also ask the IRS for a ruling using the SS8 Form if you are not sure. Jail time could be in your future if you don’t get this right for committing payroll tax evasion. And once the person no longer works for you, guess who gets to pay both the employee portion AND the company porton of all of the taxes?
- Take your time and set up employees correctly with all of the details, such as SS#, start date, full mailing address, full name, etc. Sloppy attention to detail in this area has led to many problems, which surface later.
- Stick to the same payroll period calendar. Don’t jump around from bi-weekly, to bi-month to monthly, etc. Decide in advance and stick to it.
- Always set up reminders to remind you of tax form deadlines and tax pay dates.
- Always set up your payroll vendors correctly so that you can pay them correctly.
- Do you plan to offer direct deposit? Make the employee responsible to notify you if their bank account changes. Require them to fill out the fom, sign it, and always ping the account before the first DD payroll with any new employee or new bank account.
Payroll processing should be a routine task, not dreaded or feared. With these simple steps it may even turn into a pleasure experience…. both for the business owner and the employee.