Bad Payroll Practices to Run Far Away From

If you’re just starting out, it’s hard to know what you should and shouldn’t do when managing your business. Relying on advice from fellow business owners and learning by example can be helpful, but subscribing to the wrong kind of practice can be dangerous.

We sat down and spoke with our Payroll Compliance Director, Merle Capello CPP, who highlighted the following risky practices to refrain from:

1. Telling an employee how to fill out their withholding forms.

You may mean well when an employee has questions about their W-4 or state withholding forms, but as an employer, you’re not supposed to give tax advice to your employees or tell them how to fill out their withholding forms. It may seem silly, but it’s important to avoid overstepping your bounds as an employer. Consider the future repercussions if your employees accuse you of directing them to fill their forms out in a certain way. If the form’s instructions aren’t sufficient, your employee can look online for further explanation or ask someone else for assistance but it should never be you.

2. Assuming that because you use payroll software, you don’t have to check your totals.

While DIY payroll software applications like FingerCheck360 make processing payroll much easier, no matter what system you use you should always verify your gross and your totals and reconciliation. It would be a grave mistake to not do any kind of checks and balances at all.

3. Not bothering to verify the employee’s identity.

New hires must provide proof of identity and valid documentation, as required by the United States Department of Homeland Security. As an employer, it is your responsibility to verify each new hire’s identity and employment eligibility through completion of the Employment Eligibility Verification Form I-9, a U.S. Citizenship and Immigration Services form.  Compliance doesn’t stop at employees, either. Some employers make the mistake of thinking that only employees must verify identity, but contractors must also. Regardless of whether a new hire receives a W-2 or 1099, you need to verify that the workers are authorized to work in the United States. Businesses most commonly use IRS Form W-9 to get information from vendors they hire as independent contractors.

4. Designating all payroll authority to one person.

Having a solid system of checks and balances is what will keep your business low-risk. Appointing one person to handle everything, from entering new hires down through distributing the paychecks, allows for an enormous amount of control in the hands of just one person. According to Capello, separation of duties is essential to eliminate opportunities for data corruption. Though today it’s less of an issue now because everything is electronic, separating the chain of command can help ward off-payroll corruption.

5. Writing off an outstanding payroll check.

If you have an outstanding payroll check, you can’t simply write it off and keep it. You have to escheat it to the state and go through the abandoned property process.  Did you learn anything new from this article? We’re constantly looking to compile interesting and helpful advice to help you navigate your payroll operations. If you’d like even more advice on all things payroll, see our article on 10 Bad Payroll Habits to Drop as Soon as Possible.

*This article was largely contributed to by Director of Payroll Compliance Merle M. Capello, CPP.