To err is human, but when the mistakes involve your company payroll, forgiveness might not be obtained so easily.
Last November, the City of Boston paid close to a million dollars in penalties after an IRS audit uncovered major payroll problems such as overtaxing and failure to deduct Medicare withholding taxes as well as “deferred compensation” for employees who did not qualify for a pension plan. The case made headlines across the nation and spotlighted the consequences of wilful or careless noncompliance with payroll laws.
As this example shows, payroll errors can result in unwanted government attention at best and expensive fines and penalties at worst. If your employees experience any financial losses as a result of these issues, you risk losing their goodwill, which can jeopardize your business. With so much at stake, your payroll department should take extra care to avoid common mistakes like the four listed below.
- Careless Recordkeeping Practices
An alarming number of companies fail to keep complete and accurate payroll records such as timesheets, direct deposit transactions, tax forms, and working certificates for 16 to 18-year-old employees. Both federal and Connecticut state law require you to retain payroll data for a minimum of three years, so if you are audited during this time period and your records are incomplete or riddled with errors, the consequences can be costly.
- Failing to Remain Current With Payroll Laws and Regulations
Laws and regulations for payroll change often, and staying current with them will ensure that your business remains compliant. If too much time passes before you realize that a change has been made, it can cost you time and money to correct past mistakes. Payroll updates are usually announced well in advance, so keep an eye on government websites and the news.
- Misclassifying Employees
Employees and contractors are treated very differently in terms of taxes and benefits. Some employers classify workers who are technically employees as independent contractors so they can pay less tax and avoid the cost of benefits. If an audit reveals that you have misclassified your workforce, you will have a huge problem to deal with.
- Failing to Pay Overtime
With few exceptions, Connecticut law mandates that hourly employees get paid time and a half after 40 hours of work per week. Some business owners try to dodge this extra expense by offering “comp time,” or time off, in lieu of overtime. In most cases this is illegal, even if the employee consents to the arrangement, so make sure you pay your staff accurately for every hour worked.
When it comes to payroll, there is little to no margin for error, so if you have questions about Connecticut wage laws or are concerned that you may be targeted for investigation, contact Monarch Law to schedule a consultation. We have assisted Connecticut companies with issues related to wage laws and will advise you on the wisest course of action for whatever situation you are facing.