Now that you have obtained your California seller’s permit and started your business, you probably have grown and started hiring employees. This means that you will have to expand your current payroll processes from just paying yourself to paying others. Many of the same processes you already use can be used to pay your employees, although you will want to make sure that you implement the right processes to avoid these common payroll mistakes:
1. Not using payroll software. Manually processing payroll will be a tedious and time-consuming task. You are more likely to make more errors in calculations than when using a payroll software application. Many payroll apps take care of calculating gross and net pay for you, so all you have to do is issue the payments.
2. Not classifying your employees correctly in the payroll software. You can have exempt, non-exempt, and contract employees. Exempt employees are those that you pay a set salary to each pay period and that you do not have to pay overtime. Non-exempt employees are your hourly employees. Contract employees are those you hire to do specific work or hire through a temporary employment agency.
3. Not calculating overtime wages correctly. In California, overtime wages—at a rate of one and a half times the regular rate of pay—have to be paid to your non-exempt employees when they work in excess of eight hours in a workday, any hours worked in excess of 40 hours in a work week, and the first eight hours of work on the seventh consecutive day of work.
You also have to pay double the regular rate of pay for any employees who work in excess of twelve hours in a workday and for any hours worked above eight hours on the seventh consecutive day of work. Contract workers may also have to be paid overtime wages, depending on the wording of your employment contract.
4. Not withholding the right amount of taxes. All of your employees need to complete a withholding schedule so you know how much in taxes to take out of their gross pay each pay period. The rates can vary, depending on the number of exemptions your employees select. With contract workers, you do not withhold taxes but, rather, pay them their gross pay or pay the invoice to the employment agency.
5. Not paying the right amount in taxes. In addition to withholding taxes from your employees’ checks, you also need to make sure you submit the right amount to the appropriate government agencies. Taxes are normally paid quarterly, so you will want to set aside all money withheld for taxes in a separate savings account.
6. Not paying your employees on time. You want to make sure you consistently pay your employees on the payroll schedule you have established—weekly, biweekly, semimonthly, or monthly. Not paying employees on time could make your business noncompliant with state payroll payment requirements.
7. Not keeping payroll records up to date. You need to make sure you terminate employees in your payroll software, as well as add new hires in a timely manner. Otherwise, you could accidentally pay a terminated employee or forget to pay a new hire.
Processing payroll for your employees is a task that requires either your full attention or hiring an employee you can trust to process your payroll correctly, so you can avoid making these common mistakes.
If you are getting ready to open a business in California, you can get help obtaining your California seller’s permit and business license from FastFilings.com by filling out our online contact form or calling us at (415) 857-3301 today!