Four Potential Payroll Management Issues for Small Businesses

by | IRS 940/941 Information

Payroll troubles can be real headaches for small business owners. There are a number of potential problems that can be easily avoided, if you know what to watch out for.

Questions about the Healthcare Law and Medicare changes

The Patient Protection and Affordable Care Act of 2010 (aka, Obamacare), has provisions that taking effect in 2013, and potentially impact payroll withholding.

As of January 1, 2013, the Medicare tax rate for employees earning over $200,000 ($250,000 for joint filers) increased 0.9%, bringing the rate to 2.35%. (For joint filers, the higher rate kicks-in at $250,000.)

The change does not impact anyone earning $200,000 or less in gross wages. The rate remains at 1.45%. And the employer contribution remains unchanged, also at 1.45%.

For more information on the new healthcare law/Medicare changes and small business, click here.

Late Filing Penalty Issues

The penalties for filing your company’s payroll taxes can potentially add up quickly and saddle you with huge, unnecessary debts.

There are possible penalties for failing to file, for failing to deposit and for failing to pay. Combined, the penalties can add up to about 33% of the original amount owed, plus interest! As you probably know, payroll tax/late filing penalty problems have actually forced some companies completely out of business.

And while it is possible to sometimes get penalties reduced or eliminated, especially if your company has an otherwise clean record with the taxman, it’s better to never get into this situation in the first place.

If you find yourself in payroll tax trouble, or see it coming, get help immediately. Invoice factoring with MP Star Financial can help accelerate your cash flow, to make sure you can make your payments on time.

If you’re already seriously late on payments, read MP Star’s business case study, which shows one way you might be able to catch up.

Holidays and Payroll

Bank closures on holidays can cause problems if they happen to land on a date when payroll needs to be finished.

When a payday happens to fall on a holiday, standard practice for many businesses is to pay the employee the day before the holiday. When the holiday and payday both fall on a Monday, the employee is usually paid on the Friday before the holiday.

One way to eliminate paycheck questions is to have your bookkeeper develop a yearly pay schedule that can be distributed to employees in January or upon hire. The schedule should list the periods for which employees will be paid, plus the corresponding payday for when checks or automatic deposits will be distributed. Of course, the schedule should explain what happens when paydays fall on a holiday.

Tip: Some states have specific regulations indicating that pay days must be posted in a conspicuous place, so employees know exactly when they’ll have access to their funds.

Administration and Employee Record-Keeping

Running payroll correctly requires much attention to detail. With everything else you’re doing as a business owner, this is an area where it really helps to have some qualified assistance. Typically, there are in-house and outsourced options for your payroll needs. But whatever you choose, remember that you — the employer — are responsible for the reporting and payment of payroll taxes.

Many payroll management problems arise because of clerical errors. Make sure employee social security numbers, addresses, withholding information, and other information is recorded accurately.

In businesses where employee work hours are recorded, there is always the chance for an error when hours worked are calculated, or that an employee may forget to clock out at the end of a shift. It is probably a good idea for someone in payroll to spot-check work records occasionally, to make sure that innocent mistakes are detected.


MP Star Financial’s invoice factoring services can help ensure you have cash flow needed to run and grow your business. Call MP Star Financial for more information about invoice factoring at (800) 833-3765, extension 150.


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For more specifics about invoice factoring, visit MP Star Financial online or schedule time to talk with a representative. Don’t wait 30 to 45 days for payment. MP Star can get funds to your account faster. Call MP Star Financial today at (877) 292-1904, extension 150.