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The Real Cost of Payroll Errors in the US

Posted by Anna Mastrandrea

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Mar 13, 2019 9:00:00 AM

The Real Cost of Payroll Errors in the USThe IRS has estimated that around one-third of employers make a payroll mistake in any given year. The average cost of these mistakes to employers clocks in at nearly $850 per year.

As a global employer, however, you’re wondering exactly how much payroll errors are costing you. The answer depends on the types of payroll mistakes you’re making.

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This guide will go over some of the most common errors payroll administrators make. It will also examine just how much these errors could be costing you.

Failure to Pay Is Among the Most Common Payroll Mistakes

The IRS hands out millions of payroll penalties in any given year. The bulk of those penalties are assessed as “failure to pay.”

Failure to pay means you didn’t pay all or part of the payroll taxes you owed as an employer. You may have remitted your income tax withholdings, but you forgot to submit Social Security and Medicare taxes.

The IRS assesses penalties for unpaid payroll taxes, to the tune of 100 percent of the unpaid tax plus interest. The longer the money is unpaid, the higher the interest rate will be.

You may also be penalized if you fail to file Form 941, which relates to your income tax and FICA remittances.

Each W-2 Form Can Cost You

Another common mistake employers often make is forgetting to send Form W-2 to each employee at the end of January for the previous tax year.

This mistake can add up in a large company. The IRS penalizes you $50 for each form you fail to send. If you have 10 employees, that could result in a fine of $500.

You Misclassified Workers

The IRS and various state governments have been trying to crack down on employee misclassification. This situation commonly arises when an employer assesses a worker as a 1099 contractor.

If the IRS determines this worker is actually an employee, you’ll be responsible for paying all of the tax you should have withheld. If the dispute drags on, this can mean paying back-tax for multiple years, which could cost you thousands of dollars.

The Toll of Payroll Mistakes on Your Employees

One of the more “hidden” costs of payroll mistakes is the toll it takes on your staff. If payroll is constantly being administered incorrectly, employees may need to deal with overages and shortages in their pay on a regular basis.

This creates a situation where the employee may lose trust in you and possibly decide to leave the company.

When this happens, you will need to account for the costs of turnover and hiring. While it can be difficult to pinpoint the exact reasons for turnover, the way you handle payroll could be a factor.

If you need to hire employees to replace those who leave, you should consider how much of this additional cost is directly related to payroll errors. Would you need to hire if your payroll was handled more efficiently?

The Labor Costs of Correcting Errors

Unlike hiring and employee turnover, the costs of correcting your payroll mistakes are easy to attribute. When you add them up, you’ll realize each error is costing you more than the penalty you paid to the IRS.

If you need to call someone in to work overtime to get all of your Form W-2s prepared and mailed, those costs must be added to what you’re paying the IRS in penalties. Suddenly, your costs may have jumped from $500 to $1,000.

Get a Helping Hand with Payroll

Once you’re able to consider all the factors involved in payroll penalties, it’s easy to see just how much payroll mistakes are actually costing your global business.

The best way to avoid these costs is to work with an expert team. If you need a hand, get in touch with a professional employer organization in the US to explore your options for better payroll.

7-challenges-companies-face-when-expanding-into-the-us

Topics: Payroll

Anna Mastrandrea

Anna Mastrandrea is the team lead of the payroll department at The Staffing Edge. For over 10 years, Anna has been providing the highest level of customer service to our members. Anna is an important part of our back office operations, running payroll for all of our members assignment employees, ensuring all proper payroll deductions have been set up, billing clients, and processing record of employment and filings to Service Canada. Her goal is to make sure all of our members assignment employees are paid properly, and most importantly, on time. Anna’s passion for challenges, learning, and problem solving makes her a great asset for our members, as no one member’s situation is ever the same. When Anna is not on the job, she enjoys spending time with her family, indulging her love for great wines, and playing volleyball.
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