Making payroll mistakes can become costly for everyone. Unfortunately, they happen at all types of small businesses. Discover six common payroll errors made by New Jersey employers to see if you are making any of them.
1) Classifying W2 Employees as 1099 Contractors
Employers sometimes choose to set-up what should be W2 employees as 1099 contractors. Since employers do not have to pay payroll taxes for independent contractors, they believe they can save money by doing this. If an employer is discovered to be misclassifying workers, the employer is subject to paying not only their share of the taxes but also the employee’s taxes. Also, there are usually penalty and interest charges. New Jersey is particularly strict about enforcing proper classification of workers.
2) Miscalculating State Unemployment Tax
Incorrectly calculating your state unemployment tax can lead to penalties and interest charges. Every state is different, but New Jersey has seven different unemployment taxes. The amount due is based on the amount of wages and the tax rate for each tax. The wage threshold and five of the taxes change every year on January first. The remaining two other tax rates change every year on July first. Accurate calculation of your tax liability depends on knowing your current tax rate and the taxable wages of each employee.
3) Not Depositing Payroll Taxes on Time
Employers are usually required to deposit withholding and FICA taxes on either a semi-monthly or monthly schedule. A 941 report is then prepared and sent to the IRS every quarter describing how much, and when, those deposits were made. Unemployment taxes are usually deposited on a quarterly and annual basis. In New Jersey, an NJ-927 and WR-30 are due every quarter. An annual form is sent to the IRS once a year. Not reporting based on these schedules results in late penalties and interest charges.
4) Failure to Keep Payroll Records
According to the Fair Labor Standards Act (FLSA) you need to keep all records at least three years and those records that show how you determined wages for two years (e.g., time cards that comply with FLSA timekeeping requirements). According to the IRS, you must keep records of payroll taxes for at least four years after filing the fourth quarter for the year.
5) Not Reporting New Hires
New Jersey requires the reporting of all new hires. The reporting of new hires is used by the state to send garnishment and family support orders to employers who are then required to garnish employee wages as directed.
6) Failure to Obtain Worker Compensation Insurance
New Jersey law requires that all New Jersey employers, not covered by Federal programs, have workers’ compensation coverage or be approved for self-insurance. Even out-of-state employers may need workers’ compensation coverage if a contract of employment is entered into in New Jersey or if work is performed in New Jersey.
One of the smartest ways to avoid potentially costly payroll errors is to work with a full-service payroll company for small businesses in NJ.
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