Common Payroll Mistakes Small Businesses Make

Your employees are important to your business, and you want them to feel valued. You also want them to get paid on time, every time. As a small business owner, it can be hard to balance your payroll budget with everything else on your plate. But there are concrete steps you can take to streamline the process and ensure you’re paying your employees correctly. To help you avoid common mistakes, we’ve put together this list.

Common Payroll Mistakes

Not Keeping Accurate Records

You must keep accurate records of hours worked and paychecks to pay your employees on time. If you don’t, it could be difficult for you to ensure everyone gets paid when they should.

Also, if you are going to withhold taxes from payroll, your records must be up-to-date so that you know how much money has been withheld and what is due.

Paying Late

Paying late can lead to legal issues and cause employee dissatisfaction, morale problems, and even employee turnover.

If you’ve ever been late on your rent or mortgage payment, you know the stress it causes. Paying employees late is no different: It’s stressful for both parties involved in the transaction.

Not Keeping Tabs On Overtime Pay

Overtime pay is compensation for working more than 40 hours per week. It’s calculated by multiplying the employee’s regular hourly rate by 1.5 and then adding that amount to their regular wages.

Overtime should be paid in addition to the employee’s regular hourly wage—not instead of it!

Miscalculating Vacation Time

You must give your employees their vacation time. Vacation is a benefit that employees earn, and it should be calculated accurately on the payroll. If you do not pay out vacation time, you are not complying with the law and mistreating your employees.

Not Keeping Up With Payroll Tax Changes

Because you’re a small business, you might think payroll taxes won’t be a big deal. However, it’s essential to keep up with the latest tax laws. Both federal and state tax agencies are constantly making changes, so business owners must stay on top of these changes to calculate their taxes correctly.

The Affordable Care Act (ACA) changed how employers report health care coverage payments on Form 941 (Employer’s Quarterly Federal Tax Return). This is required for all employers, regardless of size, which pays employees’ share of insurance premiums for those they employ.

The IRS introduced an updated W-4 form in January 2013 due to changes made under the American Taxpayer Relief Act (ATRA). These updates reflected changes made by ATRA that directly impacted taxable wages while lowering individual income tax rates across-the-board over time between now and 2022.

Accurate Record-Keeping And Timely Payment Are Key To Avoiding Legal Issues And Employee Dissatisfaction

The importance of accurate record-keeping and timely payment cannot be overstated.

Accurate record-keeping is crucial because it helps you to comply with state and federal regulations, which are often complex and specific. For example, the Fair Labor Standards Act (FLSA) requires that employers keep time records for non-exempt employees working more than 40 hours a week.

Timely payment is critical because it’s an ethical and legal issue: employees’ livelihoods depend on getting paid on time each payday. In addition, paying your staff on time decreases employee turnover rates by showing them that they can count on their employer to be fair and responsible.


We hope this post has helped you avoid common payroll mistakes. It’s essential to keep accurate records and pay employees on time, but there are other things to watch out for. You may be surprised at how easy it is to make these mistakes, even when you know what you’re doing!

If you need further assistance with your payroll, we are the team you can count on. We’re ready to help! Learn more here.