How to Avoid Common Payroll Fees
Avoiding Common Payroll Fees
Processing payroll is a necessity for businesses of all sizes. Software programs and third-party processors can make payroll management easier, but they can also lead to additional fees. These payroll fees can be especially challenging for small businesses or startups that are trying to keep overhead expenses low. In most cases, business owners can avoid fees when they understand the circumstances that usually lead to these additional costs.
When it's time to process payroll, the company's bank account should have enough money for all the paychecks and relevant payroll taxes. Coming up short usually incurs fees from the payroll processor. There may be more than one type of fee related to insufficient funds:
- A fee for non-sufficient funds to cover direct deposit and payroll-processing expenses
- A fee for NSF to take care of payroll taxes
- A fee for wire transfers or other financial transactions necessary to resolve the NSF issue and complete payroll processing
- A fee to reinstate payroll processing after an NSF issue
The easiest way for business owners to avoid NSF fees for payroll processing is to ensure there is enough money in the bank account to cover payroll taxes, processing costs, and pay checks. Timely, accurate accounting can help maintain a sufficient balance in a business bank account.
Incorrect Payroll Settings
Most businesses initiate payroll processing approximately every two weeks, and it can be easy for business owners to become complacent when completing such a repetitive task. However, it is fairly common for payroll settings to require changes or updates frequently throughout the year. If payroll processing begins while there are incorrect settings, it could lead to delays, fees, and other issues. There are several details and settings that should be verified before payroll processing begins:
- A complete, accurate roster of employees, including new hires
- Correct direct deposit information for each employee
- Accurate tax and wage withholding details for each person on the payroll
- Proper salary information for every employee, including overtime, vacation pay, and/or wage changes
If problems with the payroll settings require processing to be stopped or reinitiated, there may be many incurred fees. Most payroll providers charge fees to suspend the process or make changes. Business owners may need to pay additional fees if the required changes lead to NSF problems or issues with incorrect payroll taxes. Taking the time every pay cycle to verify all the payroll settings for every employee can help reduce the chances of incurring fees.
Missing Tax Identification Numbers
To operate legally, most business structures require tax identification numbers that are issued by the federal or state government. While most business owners should have applied for and received these ID numbers before payroll processing starts, that's not always the case. For example, some startups expand so quickly that owners may begin setting up payroll processing before receiving their tax ID number paperwork back from the government.
Processing payroll without proper tax information can lead to fees from providers and can potentially cause other issues down the line. While some payroll providers allow owners to enter "applied for" in the field for the tax ID number, owners should submit the actual number as soon as possible. It's vital to have all the tax ID numbers in place before initiating payroll processing.
Wrong Bank Account Information
Complete and accurate bank account information is essential for smooth payroll processing. Business owners may incur fees if any of these financial institution details are incorrect or incomplete:
- Business bank account and routing numbers
- Employee direct deposit account and routing numbers
- Independent contractor and consultant payment account details
In most cases, business owners can ensure accurate bank account information for contractors, freelancers, and regular employees by requiring them to submit a voided check. If there are employees who have their direct deposits divided and routed to multiple accounts, owners should ensure the information for every account is complete and correct.
Payroll taxes can be complicated, and processing payroll without tax information in place can lead to fees and other problems. Calculating withholding amounts and other tax information for each employee is essential throughout the year. Without up-to-date tax information for the current year, payroll processing providers may not be able to make proper withholding calculations for all employees. Many business owners also make payments to independent contractors, freelancers, and consultants, and they need to keep proper tax information for these recipients too. If corrections have to be made to fix incorrect tax issues, there could be associated fees.
Some payroll processors may charge additional fees to generate tax documents for employees in different states. There could also be additional fees for businesses that operate in multiple states or have employees who live and work in different parts of the country at various times throughout the year.
While many payroll processing providers include year-end tax services, such as generating W2 and 1099 forms, these tasks can easily incur fees if business owners don't maintain YTD tax information. There could be additional charges if amended tax forms need to be calculated, generated, and mailed. Owners can avoid these fees by keeping meticulous tax records throughout the year and ensuring tax-related payroll settings are always complete and accurate.
Many payroll processing providers charge standard fees for changes in a company's account. Business owners may have to pay fees for updates such as the following:
- Removing former employees
- Adding new employees
- Changing direct deposit information
- Modifying pay frequency
Business owners can find out about these fees before choosing a payroll provider. Standard fees, such as those related to putting a new employee on the payroll, can be budgeted for in the company's internal books. While fees relating to payroll changes may not always be avoided, business owners can prepare for them as long as they know what to expect in terms of these standard expenses.
Unplanned Payroll Requirements
While most business owners find it fairly easy to plan for standard fees, such as those for a new hire, there are several potential fees that can happen when unexpected events take place. For example, companies that send physical checks may have normal ground shipping included in their contracts with their payroll providers. However, if emergency circumstances or holiday closures require expedited shipping, there is likely to be a fee for a faster option.
Another unplanned circumstance could be emergency payroll processing. Some situations may require a provider to process payroll checks outside the standard timeframe, which could lead to fees. Many payroll processors also charge fees if they have to make adjustments (relating to taxes, withholding, or wages) because the business owners didn't make necessary updates in a timely manner. In general, any unplanned or emergency payroll processing could lead to additional fees.
Even expert human resources representatives and accountants make mistakes from time to time. Unfortunately, even small errors can sometimes lead to significant payroll fees. While most business owners will still need skilled bookkeepers and human resources professionals, there may be some tasks that can be improved through automation.
Automating certain payroll tasks can help reduce errors that lead to fees. Some business owners allow their employees to input their own hours into a computer system that can process standard payroll calculations. Another example is linking a company's human resources database to payroll information. When employee information is changed in the HR system, it could automatically initiate required payroll changes. Automation can also be used to verify payroll settings, find any inconsistencies, and help with tax compliance tasks.
Avoiding Payroll Fees
Payroll processing is a necessary part of business operation. Modern payroll software and third-party providers can make the process fairly simple for business owners. However, there are several ways to incur additional fees. Companies may be charged payroll fees for incorrect tax information, incomplete employee bank information, and insufficient funds to cover payments and payroll taxes. Emergency payroll processing, complicated tax requirements, and human errors can also lead to fees. Fortunately, business owners can avoid most fees by maintaining accurate employee records, calculating year-to-date tax information, and reducing errors through automation.