Running a small business is already a juggling act. You’ve got inventory to manage, customers to keep happy, and staff to support. But if payroll isn’t handled correctly, all that hard work can unravel quickly.
It’s not just about paying people on time. Payroll includes taxes, forms, records, and legal rules that change depending on where your business is located. If you’re running a business in Tysons, you’re probably already aware of how complex things can get with Virginia’s tax laws and local regulations.
In this article, we’re breaking down the most common payroll mistakes small business owners make—and how to steer clear of them.
1. Missing Payroll Tax Deadlines
Every business with employees is responsible for withholding and paying payroll taxes. That includes federal income tax, Social Security, Medicare, and any state or local taxes. Missing even one deadline can result in late fees, interest, and possibly an audit.
When things get busy, it’s easy to forget a due date—especially if you’re managing everything on your own. But those fines add up quickly, and they’re completely avoidable with the right systems in place.
A trusted tax accountant in Tysons can help you understand which deadlines apply to your business and how to stay ahead of them. Having expert support can also reduce the risk of costly surprises when tax season rolls around.
2. Misclassifying Employees and Contractors
Misclassifying workers is one of the most common and expensive mistakes small business owners make. You might assume that calling someone an “independent contractor” means you’re off the hook for certain taxes—but that’s not how the IRS sees it.
Employees and contractors are treated differently for payroll taxes, benefits, and legal protections. If you misclassify someone, you could be responsible for back taxes, penalties, and even legal fees.
Make sure you’re classifying workers correctly by reviewing their job responsibilities and your level of control over their work. If you’re unsure, it’s always better to double-check than to fix problems later.
3. Not Keeping Proper Payroll Records
Good recordkeeping isn’t just a best practice—it’s a legal requirement. Businesses must keep detailed payroll records for several years, including hours worked, wages paid, taxes withheld, and benefits provided.
Poor recordkeeping can make it hard to respond to employee questions, handle audits, or verify tax payments. It also increases your chances of making calculation errors.
Keeping everything digital and backed up is the safest way to go. There are plenty of payroll tools that make this easy, but even a simple spreadsheet is better than nothing. The key is to stay organized and consistent.
4. Failing to Update State and Local Tax Rules
Payroll tax rules aren’t the same across the board. State and local governments can have their laws, and they often change without much notice.
Let’s say you expand your business and start hiring remote employees. Now, you’re suddenly responsible for tax rules in multiple states or counties. If you don’t keep up, you could miss new tax obligations or continue charging outdated rates.
That’s why staying current matters. If you’re unsure where to look, some payroll software tools include automatic tax updates based on employee location. Still, it’s wise to review state websites regularly or check in with a tax advisor who knows your region.
5. Forgetting to Track Overtime and PTO Correctly
Employees have legal rights when it comes to overtime pay and time off. If you don’t track these properly, it can lead to underpayment, overpayment, or even lawsuits.
The Fair Labor Standards Act (FLSA) sets rules about when overtime kicks in, but some states go beyond the federal standards. You’ll also need to consider how your PTO policies are structured and whether they’re being applied fairly.
Mistakes here aren’t just about money. They affect employee morale and trust. Using a simple time-tracking tool or HR software can help you log hours and vacation time accurately. Even better, it gives employees visibility so they feel more in control of their schedules.
6. Paying Incorrect Wages or Withholding Errors
One of the fastest ways to lose employee trust is to pay them the wrong amount. It could be something small, like a miscalculated bonus, or something big, like missing a raise they were promised.
Withholding errors can also mess things up for both you and your employees. If you’re taking out too much or too little for taxes, it causes issues when they file their returns. Plus, you might face penalties for getting it wrong.
Always double-check your math, especially when someone’s pay structure changes. Keep updated W-4 forms on file and use software that automatically applies the correct tax tables.
7. Not Issuing W-2s or 1099s On Time
These forms aren’t just a formality. Employees and contractors rely on W-2s and 1099s to file their taxes correctly. And if you miss the January 31 deadline, the IRS could hit you with late fees for every form that’s delayed.
Make a habit of preparing these forms early. Many payroll systems can generate them automatically, but you still need to review the numbers and file with both the IRS and your workers. Getting them out on time shows that you respect your team—and that you’ve got your act together.
8. Handling Payroll In-House Without Help
Handling payroll alone might feel like a smart way to save money. But the more your business grows, the harder it becomes to manage without expert help. One small mistake could cost you more than hiring someone in the first place.
Whether you hire an accountant, outsource payroll to a service, or use dedicated software, it’s important to have a system that works. Don’t wait until you’re drowning in paperwork or facing a penalty notice.
Getting payroll right can feel overwhelming. But you don’t have to do everything perfectly—you just need to stay informed and stay on top of the basics.
Mistakes happen when you’re trying to do too much on your own or using systems that don’t fit your business. Take time to review your payroll process. Make small changes now to avoid big headaches later.
You’ve worked hard to build your business. Don’t let payroll errors drain your time, money, or energy. Stay sharp, stay organized, and when in doubt, ask for help.
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