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Are You Guilty of These 7 Payroll Mistakes?

If your company has been in business for a while, you may not pay much attention to your payroll system so long as it’s running smoothly. But don’t get too complacent. Major payroll errors can pop up unexpectedly — creating huge disruptions costing time and money to fix, and, perhaps worst of all, compromising the trust of your employees.

For these reasons, businesses are well-advised to conduct payroll audits at least once annually to guard against the many risks inherent to payroll management. Here are seven such risks to be aware of:

1. Inaccurate recordkeeping. If you don’t keep detailed and accurate records, it will probably come back to haunt you. For example, the Fair Labor Standards Act (FLSA) requires businesses to maintain records of employees’ earnings for at least three years. Violations of the FLSA can trigger severe penalties. Be sure you and your staff know what records to keep and have sound policies and procedures in place for keeping them.

2. Employee misclassification. Given the widespread use of “gig workers” in today’s economy, companies are at high risk for employee misclassification. This occurs when a business engages independent contractors but, in the view of federal authorities, the company treats them like employees. Violating the applicable rules can leave you owing back taxes and penalties, plus you may have to restore expensive fringe benefits.

3. Manual processes. More than likely, if your business prepares its own payroll, it uses some form of payroll software. That’s good. Today’s products are widely available, relatively inexpensive and generally easy to use. However, some companies — particularly small ones — may still rely on manual processes to record or input critical data. Be careful about this, as it’s a major source of errors. To the extent feasible, automate as much as you can.

4. Privacy violations. You generally can’t manage payroll without data such as Social Security numbers, home addresses, birth dates and bank account numbers. Unfortunately, possessing such information puts you squarely in the sights of hackers and those pernicious purveyors of ransomware. Invest thoroughly in proper cybersecurity measures and regularly update these safeguards.

5. Internal fraud. Occupational (or internal) fraud remains a major threat to businesses. Schemes can range from “cheating” on timesheets by rank-and-file workers to embezzlement by those higher on the organizational chart. Among the most fundamental ways to protect your payroll function from fraud is to require segregation of duties. In other words, one employee, no matter how trusted, should never completely control the process. If you don’t have enough employees to segregate duties, consider outsourcing.

6. Legal compliance. As a business owner, you’re probably not an expert on the latest regulatory payroll developments affecting your industry. That’s OK; laws and regulations are constantly evolving. However, failing to comply with the current rules could cost you money and hurt your company’s reputation. So, be sure to have a trustworthy attorney on speed dial that you can turn to for assistance when necessary.

7. Tax compliance. Employers are responsible for calculating tax withholding on employee wages. In addition to deducting federal payroll tax from paychecks, your organization must contribute its own share of payroll tax. If you get it wrong, the IRS could investigate and potentially assess additional tax liability and penalties. That’s where we come in.

For help conducting a payroll audit, reviewing your payroll costs, and, of course, managing your tax obligations, contact us!

Hiring teens for the summer? Here’s how

Each May and June, millions of teenagers begin their search for a summer job. Before hiring teens for any summertime help, it’s a good idea to be aware of the Federal and State laws governing youth in the workplace. The Fair Labor Standards Act (FLSA) youth employment provisions are designed to protect young workers by limiting the types of jobs and the number of hours they may work, based on the age of the minor. The following provisions apply to nonagricultural occupations:

18 Years of Age: Once a youth reaches 18, the Federal child labor provisions no longer apply to them — they can work any job for any number of hours. Remember that states have their own labor laws, so be sure to check your state’s work laws in non-agricultural work

16 & 17 Years of Age: Under the FLSA 16- and 17-year olds may work on any day for any number of hours. However, individual states may limit the hours or the times of day that anyone under the age of 18 may work. Also, all youth under the age of 18 are prohibited from working any non-farm jobs deemed hazardous.

14 & 15 Years of Age: 14- and 15-year-olds may work:

  • Non-school hours
  • 3 hours on a school day
  • 18 hours in a school week
  • 8 hours on a non-school day
  • 40 hours in a non-school week
  • Between 7 a.m. to 7 p.m. (except June 1-Labor Day when hours are extended to 9 p.m.)

Alert to parents who hire their children

There’s a lot to be said for hiring family members to work in your business. Hiring your children won’t only provide them with spending money…your business may obtain a deduction for their wages as well.

Since there’s no specific exception from income tax withholding for wages you pay to family members, you’ll generally have to withhold income taxes from the wages you pay them. However, you’ll be relieved from some FICA taxes and federal (and perhaps even state) unemployment taxes, depending on the type of entity and ownership makeup.

Keep in mind, the Social Security Administration (SSA) may question the validity of wages if the recipient is on record as a young child. Unless you can provide acceptable detail such as date of birth and job responsibilities, your child may not be given credit for the correct amount of wages.

In fact, the information obtained may be given to the IRS or the Department of Justice for investigating and prosecuting violations of the Social Security Act. Matching programs compare the SSA’s records with those of other Federal, State, and local agencies, which are often used to find or prove that a person qualifies for benefits paid by the Federal government.

Rule of thumb: Put your child on the payroll only if there is a legitimate job offering with responsibilities that are within the child’s capability…and then, make sure that your child does the work!

If you are looking into hiring teens or your own children, a Padgett business advisor can help you make sure you’re following the regulations for their schedule and making the most of available tax deductions. Find a location near you today.

When Should I Hire Contractors Or Employees?

If you’re thinking about hiring new staff ahead of the holiday rush, or you’re reworking existing staff, you’ve likely run into the issue of deciding whether you should treat them as a contractor or an employee. How do you choose what’s best for your business? 

The difference between a contractor and an employee 

First, it’s important to understand exactly what the differences are between contractors and employees. 

A contractor—who may also be known as a freelancer or a contract worker—is an independent worker hired to do a specific job or task. They may work for multiple companies simultaneously. They generally have more control over when and how they work. Unlike employees, contractors aren’t officially on the payroll and don’t receive a W-2 or benefits like a 401k or insurance. Instead, they are considered self-employed and may have their own business, such as an LLC or sole proprietorship.  Depending on their contract, they may be paid for their time or by project completion—such as a freelance writer being paid per article. 

An employee, on the other hand, is someone who performs services an employer controls and is paid an hourly wage or a salary. Employees also have certain rights, such as protection from discrimination and entitlement to leave under the Family Medical Leave Act. 

How to determine if someone is a contractor or an employee 

If you’re looking at hiring someone and aren’t sure whether to classify them as a contractor or an employee, there are some things to consider. Keep in mind, there are consequences for misclassification, including penalties, fines and possible legal trouble, so you need to get this right. 

The IRS looks at factors such as: 

  • How is the worker paid? Is it on a regular schedule such as weekly, or is it when a project is complete? 
  • How does the worker complete their tasks? Are they in an office or working from home? Do they use their own tools and technology? Do they have set hours? 
  • Is the work temporary or ongoing? Is the worker contributing to projects that have set end points, or is there an indefinite length to their work with you? 

They may also consider things such as travel, as employers generally pay for work-related travel for employees, and company training, not commonly provided to a contractor.  

The pros and cons 

Contractors offer business owners more flexibility than they can typically get with employees. A business can hire contractors to do a specific task or project. Contractors are also often more affordable than employees, especially as the employer is not required to offer benefits or pay payroll taxes. Businesses may also be able to save time and money on training, office space, and providing tools or technology by hiring a contractor. 

However, you’ll have less control over how and when the work is done. They won’t be on your payroll, so you’ll have to account for their pay differently and you may lose out on some tax benefits. And once their contract ends, they may not be available the next time you need help. 

Hiring an employee may be more challenging and expensive with training, payroll taxes, and benefits, but ideally, there is a greater sense of loyalty. Unlike a contractor who may be working for other companies and is thinking about getting their next gig, a well-treated employee can become a valuable, trusted member of your team long term. 

What’s best for my business? 

Whether contractors or employees are the right approach for your business will depend on factors like the type of work you need and your budget. If you’re still not sure what’s right for you or want to avoid costly misclassification mistakes, Padgett’s nationwide network of CPAs and EAs are here to help! With our decades of tax, payroll and accounting experience, we can help you find the solution your business needs. Find a location near you today! 

Padgett announces partnership with payroll provider ADP

Athens, GA — Padgett, an accounting and tax planning and preparation franchise with hundreds of locations across the U.S., announced their revised partnership with ADP, a national payroll and human resources management software company.

“Our new partnership with ADP brings a lot of benefit to our franchisees, and through them, to our small business clients,” Padgett’s Chief Operating Officer Amanda Aguillard said. “Our hope is that this partnership will allow our franchisees to more easily provide expanded payroll services to their clients and better meet their needs.”

Established in 1949, ADP has spent over 70 years establishing themselves as the leading provider of human capital management (HCM) solutions, including payroll, human resources, time, talent, tax and benefits administration. Their cloud-based software, next day direct deposit and decades of payroll management experience makes the platform a trusted source for businesses worldwide.

“ADP pays, on average, one in every six Americans,” Greg Grant, Strategic Alliance Executive for ADP’s small business services division, said. “There are millions of people who rely on us for managing their payroll, and there’s a reason for that. We understand that many small businesses don’t have the resources to handle a lot of payroll and HR tasks alone. We keep the focus on the people and allow them to maximize their time so they can do more with less.”

The new partnership with ADP is Padgett’s latest step towards building an industry-leading approach to technology for their network of individually-owned firms across North America. Following their partnership with CPA Site Solutions to launch new websites for every location, their attention has turned to strengthening their technology offerings for back-end operations.

“We’ve been working hard on building a really solid tech stack for our franchisees, with tested and proven software that provides a lot of value,” Aguillard said. “ADP is a key foundational piece of our ecosystem.”

About Padgett

Through a network of hundreds of individually owned firms, Padgett provides tax, accounting, payroll and consulting services to tens of thousands of small businesses across the U.S. and Canada. With an entrepreneurial spirit and more than 50 years of experience, Padgett aims to serve as trusted advisors and empower business owners to pursue their financial and personal goals. Learn more

About ADP

Designing better ways to work through cutting-edge products, premium services and exceptional experiences that enable people to reach their full potential. HR, Talent, Time Management, Benefits and Payroll. Informed by data and designed for people. Learn more

Successful business owner “Profile”: Jarin Jaffee

Jarin Jaffee’s background was as an educator and administrator in private schools, but after getting involved with Profile by Sanford, he pivoted to a new way of helping people improve their lives. He joined the health and weight loss program in 2018, and in 2019, he opened the Toledo Profile location. “I lost 35 pounds, and it helped change my life, so I got involved as a business owner,” he says. “We’re now the number two Profile location in the country.”

Before opening his business, Jarin joined a Business Networking International group, where he met Tom and Amy Friedel, owners of Padgett Toledo. “I was already connected to ADP and had a bookkeeper in Nebraska through Profile, but I needed an accountant, both personal and business,” Jarin explains. “So, I started with Tom and Amy through Padgett. Eventually, I asked what it would cost to add payroll and moved that over. They’ve helped me with PPP and ERC during COVID-19, my quarterly filings, pretty much everything except bookkeeping.”

With Padgett by his side, Jarin’s Profile business quickly found success. He broke even in less than a year, in March of 2020, and maintained profitability even during the pandemic. By September, his location was in the Top 25 Profile locations nationwide before taking the first-place spot in spring 2021. Though two locations have since merged and pushed the Toledo Profile down to number 2, it remains the top-rated fitness location in Toledo and a preferred referral of many local doctors. All together, Profile Toledo members have lost about 21,000 pounds—including Tom.

“Tom actually joined our gym, and he’s one of our ten members who has lost over 100 pounds in our program,” Jarin says. “We’re proud to support him as a business owner and support his health, because as a business owner his health is not entirely his own. Tom and Amy know what I do and believe in what I do.”

In Toledo, Jarin says that relationship-based connections are key, and that makes Tom and Amy’s large network an important benefit. “He’s helped refer others to us,” Jarin says. “I’ve certainly tried to steer some people their way as well. I consider Tom and Amy a big part of our success and I’m very grateful for them. I recommend Padgett whenever I can.”

“Small business ownership is really hard, even when you’re winning,” Jarin warns. But his advice for other small business owners? “Don’t sacrifice your family and personal happiness because it ends up not being worth it. It’s important to build a team of people to support you—you need those people to help you dig out of your mistakes. Otherwise, business ownership can feel lonely.”

But between spending lots of time at home with his wife and children and working with his Padgett partners, Jarin has avoided the loneliness. “I consider Tom and Amy friends,” he says. “I love their whole staff. They’ve been very helpful beyond the typical small business accountant services.”

“The thing I value most about Padgett is the personal attention,” he adds. “I can ask Tom and Amy questions in an informal way, and they never make me feels stupid. I don’t have a background in finance or accounting, and I know I ask some ‘dumb questions’ but they never make me feel like my questions aren’t worth their time. Shelley is amazing with payroll help, answering questions from my employees. It all goes back to that level of service that’s relationship based instead of transactional.”

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