Here are some of the most typical payroll mistakes we’ve seen entrepreneurs make, from payroll setup to paystub maker and beyond, and how to avoid them.

1. Taxes on wages

This is the largest, and probably most damaging, payroll blunder you can make.

Payroll taxes are collected on a pay-as-you-go method in the United States. There are a variety of federal, state, and municipal taxes that may or may not be applicable to your company. Filing your payroll taxes late might cause a major financial setback for your business.

According to the IRS, nearly 40% of small firms have penalized an average of $794 per year for salary-related violations, with lost or late payments being the most usual.

Your payroll company should assist you in determining which taxes apply to your company and handle the complexities of filing and repaying the various tax agencies.

2. Contractor vs. employee

In terms of benefits and taxes, there are significant differences between a worker and a consultant. Because the work is temporary, contractors may make logical sense for many small firms.

However, be cautious not to misclassify your employee, as this could result in a breach of labor rules. Factor involves an employee as a consultant usually has tax implications.

3. Nonexempt vs. exempt employees

The Fair Labor Standards Act (FLSA) governs how employees are treated at work in a variety of ways, including payment. Employees are classed as either exempt or nonexempt under the FLSA. It’s critical to get this classification correct in order to keep accurate records and pay employees—also to prevent fines and additional compensation for overtime which should have been given to an incorrectly classified non-exempt employee.

Nonexempt employees shall be paid a basic wage and get overtime pay for hours worked after the standard 40 hours per week are met, and overtime pay is required in some places (such as Texas) if a nonexempt employee works more than 8 hours each day.

4. Providing pay stubs when necessary

Although there is no federal legislation requiring pay stubs, most counties have their own rules. These rules regulate how pay stubs are distributed (electronic or paper), whether workers can opt-in or out of electronic distribution, and what data must be contained on pay stubs. Also, if you don’t obey the rules, you’ll face consequences.