Payroll is one of the most crucial pillars of running a business. Without it, the rest of the structure crumbles. In addition to keeping employees paid and coming to work every day, precise payroll records are foundational in predicting a company’s cashflow, bookkeeping, and keeping taxes in order—to name just a few. There are many different elements that go into the payroll process. Chances are, if your records are a mess you’re going to miss something eventually, and a single mistake could land you in hot water with the IRS, or worse.
1. Errors cost time and money.
It’s impossible to overstate the importance of error-free payroll records when it comes to assessing the health and profit of a company. If you’re doing payroll yourself, you’ll be fully responsible for accurately calculating every detail of employee payroll — deductions, wage garnishments, new hire documents, benefits contributions, taxes…the list goes on. A single error could result in heavy fines from the IRS and countless hours of paperwork and extra accounting, or close your doors for good. Inversely, by examining accurate payroll reports, you may discover trends or areas where you can reduce inefficiencies, increase profitability and make cost-saving changes to your business structure.
2. Mistakes affect employee morale and cause confusion.
Your employees’ trust is the glue that holds your business together: they show up every day to work, and in return they expect a paycheck delivered on time, every time. They have families and bills to pay — after all, their livelihoods depend on reliable and predictable income. If you make a mistake on an employee’s tax withholdings, they could face penalties from the IRS, even if they’re not directly responsible for the error.
Commonly, inaccurate payroll records result in an employee being underpaid for a period of time. While usually an honest mistake, it can be argued that this is essentially stealing from employees. Even if such an error doesn’t result in a lawsuit, rectifying the situation means more frustrating work for your poor, beleaguered accountant and makes your financial health hard to predict.
3. Your reputation is at stake.
By now, we’re all aware that word gets around fast these days. Since payroll is one of the most fundamental aspects of running a business, it says a lot about an organization if it can’t keep employees paid and happy. If turnover rate is high at your company because of payroll issues, it follows that quality of service and customer satisfaction will likely decline as well. Lastly, a lawsuit could create negative publicity and irreparable harm to your reputation amongst your peers in your local business community.
Since the payroll process affects every part of your business in a big way, it’s important to have a clear, accurate process for every piece of the payroll puzzle from start to finish. Even if you have a working payroll process in place, it’s a good idea to double check and make sure you’re not missing anything. Use our payroll process checklist to verify that you’re not missing any vital steps. If you’re running payroll yourself, you may also want to consider outsourcing to a payroll professional to reduce the risks and improve accuracy.
If you’d like more advice on how to set up and process payroll, Avitus Group provides expert payroll packages to fit businesses of any size. If you’d like to learn more about how we can help, book a free consultation with us today.