Keeping accurate payroll records is essential to your business’s accounting system. It can help you stay compliant with federal and state laws, save money, and avoid penalties.
Accurate recordkeeping is a federal requirement for most small businesses and an excellent way to comply with the Fair Labor Standards Act (FLSA). In addition, it allows you to keep track of your employment taxes for up to four years after each year they’re due.
Table of Contents
Payroll is an essential part of your business’s accounting system
Accurate payroll records are a necessary part of your business’s accounting system. Not only do they keep you in compliance with federal, state, and local tax regulations, but they can also save your business money.
For instance, an accurate record of employee wages can help you determine whether or not your employees are meeting minimum wage requirements for the state where your business is located. It can also help you comply with court orders to garnish a portion of an employee’s pay to satisfy a debt.
Similarly, accurate payroll records can help you stay on top of employee benefits like health and disability insurance payments and retirement plan contributions. Keeping these payments real and on time can save your company money and keep your employees satisfied.
Payroll can be managed manually or with the help of software. Using payroll software can make the process more efficient while freeing your staff to focus on the more essential aspects of their jobs.
Another way to get accurate payroll records is to hire an accountant. These professionals are highly experienced in managing payrolls and can be invaluable in helping your business avoid penalties and remain compliant.
Aside from being expensive, hiring an accountant can also be time-consuming. This is especially true for small businesses with limited resources and inexperienced employees.
Accurate payroll records can save you money
Accurate payroll records are crucial for small businesses because they can save you money in the long run. This is especially true if you use a software system to manage your payroll.
Payroll software allows you to automate calculating salaries, determining tax and withholdings, and then distributing employee payments. It also provides detailed accounting reports that help you keep track of your payroll expenses.
The right software also helps you calculate employee benefits, including health insurance and 401(k) contributions. This means you can ensure you provide your employees with a healthy and competitive compensation package.
Many payroll software systems also allow you to input crucial tax data, like social security deductions, based on the employee’s location or circumstances. This ensures you comply with IRS and Department of Labor (DOL) requirements.
Moreover, payroll systems make it easy to double-check your work and avoid any mistakes that could result in shorting your employees’ paychecks or opening you up to liability.
In addition to reducing your overall operational costs, accurate payroll records can help you avoid fines and penalties from the IRS or DOL. These fees can be costly and difficult for many small business owners to afford.
Accurate payroll records can help you avoid penalties
Running payroll is a significant part of running any small business. As a result, it’s crucial to ensure correct payroll records to comply with federal and state laws.
There are several steps to running a compliant payroll. First, you’ll want to ensure a supervisor approves each employee’s timecard before the paycheck is issued.
Next, you’ll want to calculate each employee’s gross earnings. Then, you’ll need to deduct and withhold the proper employment taxes, benefits premiums, garnishments, and other authorized deductions and withholdings from their total pay.
It’s also important to check that your employees are classified correctly. For example, some employees may be exempt from paying tax withholdings while others are not.
In addition, it’s essential to keep track of all payroll tax payments and reporting deadlines. If you miss these, you can incur penalties that increase according to how late your taxes are paid and reported.
As a rule, you should keep employee payroll records for at least three years. This is the minimum period required by the FLSA and other federal laws. However, state laws vary widely. Some states require you to keep these records for four years.
Accurate payroll records can help you stay compliant
Correct payroll records are necessary for small businesses, as these documents document employee wages, taxes, and other employment information. In addition to keeping up with the legal requirements, these records can help you make decisions about raises and additional compensation and protect your business against unfair or incorrect payment claims.
Payroll records typically need to be kept for at least three years, although some states require longer retention times. These records include time cards, work and time schedules, wage rate tables, job evaluations, and more.
Wages are one of the most significant expenses for your business, so it’s essential to stay accurate in this area. This includes calculating the correct salary status, which is how you pay your employees and their hourly rates, and keeping track of tax deductions, such as Social Security and Medicare.
Maintaining accuracy in this area is vital to your small business’s success, and it can save you a lot of time and headaches down the line. Additionally, failing to withhold and report taxes properly can lead to costly penalties from the IRS.
The most efficient way to stay compliant is by using payroll software that tracks current federal, state, and local laws. It also notifies you of compliance requirements and tax deadlines, helping you stay on top of your payroll process and avoid expensive penalties.