An important function of any small business owner is keeping accurate financial records. Although businesses can employ third parties to oversee payroll and bookkeeping, the ultimate responsibility falls to the business owner. The owner is where the buck stops when it comes to ensuring that a business’s records are updated and accurate. In this article, we will discuss common payroll mistakes that businesses in Florida make that can get them into trouble.
Common Payroll Mistakes
Reemployment Taxes
Florida has a relatively low tax base, which makes the state a popular destination for many individuals and businesses to move to. This low tax base also includes a prohibition on state income tax. Since there is no income tax on individuals, many businesses assume that they do not have to pay any taxes on employee payroll.
The fact is that Florida requires employers to pay something called a reemployment tax. Reemployment tax is the employer’s amount into the unemployment trust fund that allows claimants to receive compensation while searching for a new job. According to the Florida Department of Revenue, the employer pays 2.7% of the first $7,000 of an employee’s wage.
Failing To Deduct Properly From Wages
When paying out wages, there are many deductions that an employer is required to withhold. Some of these deductions are eligible to be deducted before taxes are paid out. Failing to make these deductions can cause the employee to pay more in taxes.
Failing To Meet Tax Deadlines
The IRS and the Florida Department of Revenue have certain hard deadlines that business owners must meet for tax filing purposes. Failing to meet these deadlines can easily result in monetary fines and may also lead to audits. Therefore, a company needs to be aware of these deadlines and ensure that they meet them.
Wrongly Classifying Their Labor Pool
Companies can classify their labor pool into two categories. A company can classify a worker as either an employee of the company or as an independent contractor. If a business classifies someone as an employee, then the company must pay certain benefits and withhold taxes. On the other hand, independent contractors have to pay their taxes and benefits. From a payroll perspective, it is easier to classify workers as independent contractors, which is where companies can get into trouble.
A business classifying someone as an independent contractor does not automatically make them an independent contractor. Federal law outlines what it means to be an independent contractor versus an employee. Additionally, the burden of proof is on the employer to show a worker is not an employee. Failing to properly classify a worker can result in major fines and payment of back taxes. In Florida, it can even lead to a felony conviction.
Failure To Keep Accurate Payroll Records
Federal and state laws require employers to maintain certain records and files on employees, even after leaving the workforce. Failure to do so can lead to fines and audits of the company.
Contact Dowd Law
If you are a business owner, contact Dowd Law to ensure your payroll complies with federal and state law. If you have concerns that you have made one of these payroll mistakes, Dowd Law can help navigate the legal implications to assist you in getting your business into compliance.