The Problems with Incomplete and Disorganized Records
Recordkeeping is arguably the backbone of any efficient payroll management system. For instance, the smallest of numerical mismatches result in major and subsequent errors, including misclassifications, payment delays and improper tax filings. Click through to understand how you can be more organized and avoid costly audit penalties as a result.
An unorganized and inefficient payroll process is a recipe for eventual disaster. If you rely on paper processes, both manual data entries and a massive number of spreadsheets can yield more errors than most people realize.
Plus, those mistakes may not only take weeks or months to uncover, but they take a long while to fix as well. The importance of maintaining complete and organized records is paramount.
Penalties you can face for filing incorrectly or belatedly
Folders filled with W2 forms have limited value if they are unorganized and haphazardly put together. Maintaining comprehensive records can safeguard your business in the event of an IRS audit. Failing to submit W2s on time can result in penalties imposed by the IRS, amounting to $50 per W2 if the correct form is filed within 30 days of the due date.
In fact, the maximum penalty can reach up to $536,000 per year, or $187,500 for small businesses. However, if the filing is done between 30 days after the due date and Aug. 1 of that same year, then the fine is exacerbated to $100 per form, with a maximum penalty of $536,000 for small businesses.
The issues with manual payroll systems
Relying on manual payroll systems increases your dependence on a single individual to handle all payroll tasks. But what happens when the payroll manager is out of the office for the day or no longer works for the company?
Without an organized payroll system, the next person who takes on the role will likely be bewildered by the chaos that ensues. This situation sets up everyone for failure. Plus, this can potentially lead to significant issues, particularly when facing an audit or dealing with a process review.
Without a comprehensive and well-documented records management strategy, your organization is at risk of data loss as well. Ultimately, this can have far-reaching consequences for you, specifically when it comes to accessing payroll records.
Questions to ask yourself
What is the speed at which you can locate items? Can you effortlessly retrieve the precise location of any record at any given time?
In the event of cluttered and disorganized archives, you can lose a lot of time and compromise your own productivity if you don’t organize your records. Do you have multiple copies of your records?
If revisions and edits have been made by multiple people, remember that inconsistencies can pop up. So, do you have a contingency strategy in place for your records? Consider options like off-site storage, backup tape rotation, cloud storage and backup servers.
Potential consequences of being unorganized
Inadequately tracking records or experiencing oversight can have detrimental consequences. This is particularly true in terms of taxes, budgets and payroll.
Being unorganized could result in a number of complications, including legal repercussions or challenges in promptly producing necessary records. In the event of an IRS audit, it is crucial that you possess precise, comprehensive and well-organized payroll records to avoid fines or penalties.
How to better organize your payroll records
According to the IRS, approximately 40% of small to midsized businesses face penalties due to incorrect payroll filing. Conduct a thorough audit of your system to identify any inefficiencies in your current records management plan. Make necessary updates and improvements to enhance the efficiency of your processes.
When it comes to payroll records, it is crucial to be exceptionally meticulous. Most payroll providers offer efficient systems for recording, storing and maintaining all payroll data generated by your company. Select a payroll specialist that provides solutions that are specifically designed to ensure accurate and compliant recordkeeping.
Even if you have a combination of part-time, full-time and remote workers, you are not immune to the repercussions of payroll errors. Avoid situations where you need to search for the W2s of seasonal employees or misplaced 1099s for independent consultants. It is your responsibility to maintain up-to-date payroll records, including time sheets, for all your workers.
The Small Business Administration recommends holding onto all payroll records for a minimum of six years. But each state has its own storage timeline requirements, so look into the expectations pertaining to your state in particular.
Set aside sufficient time to manage your payroll by running reports in advance of payroll processing deadlines. That way, you can review them, search for any mistakes and then promptly rectify them. Overall, if you notice a payroll error, address it immediately.