5 certified payroll reporting mistakes that will cause delayed payments – learn how to avoid them.
Filling out weekly certified payroll reports can be a time-consuming and frustrating task, especially if you complete them by hand or have to manipulate data in order to create them. Transposition errors and other mistakes are bound to happen, no matter how careful you think you are being. Making mistakes on certified payroll reports will lead to more frustration and you’ll end up spending more time correcting the errors; mistakes will also put your company’s good standing in jeopardy with the General Contractor or Project Administrator.
Certified Payroll/Prevailing Wage reporting can be complex and varies by state. Learning how to avoid the following mistakes and submit the reports properly the first time will benefit you and your company.
- Your reports are rejected as inadequate or incomplete – you may not have submitted the proper form or some of the required information is missing. You’ve been told that you need to correct the forms and resubmit them by a new deadline or your company, and the General Contractor, will have to wait longer to receive payment. Delayed payments have a negative affect on everyone’s cash flow. The Labor Standards Clause of the final contract (and the bid package) for each job usually provides you with a sample of the certified payroll reporting form that you will be required to submit; it will also inform you if you are required to file your reports electronically.
- You didn’t pay your employees prevailing wage and you didn’t submit certified payroll reports - you’ll need to make wage restitution to your employees to bring their rate of pay up to the prevailing wage rate required on the job and then you’ll need to submit ALL of the certified payroll reports within 30 days from the time that the General Contractor was notified. Payments to both your company and the General Contractor can be delayed. The requirement to pay prevailing wages and submit certified payroll reports is included and usually discussed in the Labor Standards Clause of the bid package and the final contract.
- You didn’t pay your employees the rate of pay listed in the Wage Decision – you’ll need to make wage restitution to your employees, provide proof of the wage restitution, and submit corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. A Wage Decision is a listing of all the different Work/Trade Classification and minimum wage rates (base PLUS fringe) that must be paid to anyone performing work on the jobsite. Some Wage Decisions cover several counties and/or types of construction (residential and commercial) and can be difficult to read – in instances such as this, the Contract Administrator may prepare a Project Wage Rate Sheet or issue a Wage Bulletin, which will only show the Work/Trade Classifications and wage rates for a specific project. The Wage Decision is found in the Labor Standards Clause of the bid package and the final contract.
- Your employees Work Classifications do not match those listed on the Wage Decision – you’ll need to correctly classify your employees according to the Work/Trade Classification found on the Wage Decision, and quite possibly make wage restitution to your employees. You’ll need to provide proof of any wage restitution, if applicable, and provide corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. Each employee must be classified and paid accordingly, based on the type of work they are performing. If the Wage Decision doesn’t contain the correct Work Classification; a written request must be submitted. The written request must identify the Work Classification that is missing, recommend a wage rate, and provide a description of the actual work being performed. This written request should be submitted/discussed at the bid qualification meeting.
- Your reports have incorrect computations, unclassified “Other Withholdings”, or do not indicate how the fringe benefit portion of the prevailing wage is paid – you will need to submit corrected reports within 30 days of the date that the General Contractor was originally notified. While these items may seem trivial, they are all part of the requirements of certified payroll reporting. Always check the “math” on the final reports before submitting them, for example, the Federal WH-347 certified payroll report should match the employees paycheck exactly for gross wages ALL jobs, withholdings and net wages paid for the week, even if you use a software program to generate your reports you should verify that these numbers match before you submit the reports.
Learning to avoid these mistakes is in your best interest because will you avoid extra paperwork and be paid in a timely manner.
If you are manually creating the reports or having to manipulate large amounts of data to generate the reports, you aren’t saving any time (or money) and need to automate the process in order to eliminate the transposition errors and save valuable time that could be better spent on other tasks. I see many QuickBooks users discussing on the Intuit forums how they generate the built-in QuickBooks certified payroll report and either manually make corrections or print the report and then enter that data into a fillable Federal or State Specific certified payroll report on a weekly basis.
Make sure that you have thoroughly reviewed the Labor Standards Clause of the bid package AND the final contract package and provide your payroll administrators with the information that they need to correctly pay your employees. If you continue to submit incorrect certified payroll reports you will be in violation of certified payroll reporting requirements and this can mean that you will be disbarred; not allowed to bid on or perform work on prevailing wage projects for up to 3 years. Additionally, you may be passed over in favor of another company (even if you do top quality work) if you have a “checkered past” in meeting the reporting requirements.
Wage Restitution is the difference between what the employee should have been paid (base PLUS hourly fringe) and what they were paid.
If you are new to certified payroll reporting requirements, sign up for a 2-hour Certified Payroll Reporting Training webinar, $69.00 per person.
If you use QuickBooks and want to automate the entire certified payroll reporting process, request a Free 30-Day Trial of Certified Payroll Solution.
Payroll is an essential part of your business – not just a weekly, bi-weekly, or monthly annoyance. Payroll is the primary way that employees are rewarded for good job performance and retained. If you are issuing late or incorrect paychecks it can lead to dissatisfied, unmotivated workers – or worse. It’s hard to keep good employees when a company gets payroll wrong.
The relationship between employees and employers is highly regulated by the government and many of these regulations involve payroll. There are literally hundreds of things that you have to know, as well as hundreds of mistakes that you can make. As a result, the payroll process is much more complicated than anyone who has never done it can possibly know.
The consequences of some mistakes can be more serious than just your paychecks simply being incorrect. Many mistakes result in getting a very hard time from people you don’t know (and certainly don’t want to know) – the federal and state enforcement types.
Below are 5 Common General/Miscellaneous Payroll Mistakes that can occur all year long.
1. Poor Record Keeping
You’ll need to maintain payroll records as a chronological history of your employment practices, which is certainly troublesome; but, the alternatives are the usual – fines, penalties, interest, and even jail.
Approximately 10 different agencies and laws have their own requirements – counting the state as only one. Did someone mention the “paperless office”? Below is a list of common items that you must keep – but we certainly won’t even try to advise you on the “how long you have to keep them” aspect.
- Timesheets
- Cancelled or cashed checks, check stubs
- Payroll registers (reports) showing payment, work or trade classification, and deduction detail
- Federal and State W-4 Forms
- Copies of Certified Payroll Reports for each prevailing wage job
- Copies of Form W-2 and 1099
Some states and/or agencies require an employer to be able to provide copies of these records within a certain period of time or incur the fines.
2. Being Ill-Prepared for an Audit
An audit of any sort – be it Worker’s Compensation Insurance, Prevailing Wage Audit, State Unemployment Audit, or a General Liability Insurance Audit – can happen at any time. Being prepared for that Audit can cut down on the amount of time you have to spend gathering all the data and even can cut down the amount of time that the auditor has to spend to do the review. (Which translates into you not being able to do the other things that you need to because you have to keep stopping what you are doing and running off to “find” something.)
Be organized, keep good records, and make QuickBooks track some of the information for you.
- If you work on Prevailing Wage Jobs – purchase inexpensive 3-ring binders and keep a job notebook with copies of the Certified Payroll reports.
- File Weekly timesheets and payroll summaries together.
- Make sure that you use QuickBooks payroll wage items to track employee work or trade classifications.
- Make sure that you have current W-4’s, I-9, and W-9 information on hand.
- Create a custom field in QuickBooks to track when Subcontractor Worker’s Compensation Insurance Expires
These are just a few of the things that you’ll need to track – it does give you a starting point.
3. Breaches in Confidentiality
It’s seldom that anyone talks specifics about their salary in public and no one should find out someone else’s salary in private.
There is at least one taboo left in public discourse: your weekly salary. The best place to find out someone else’s salary is in your company’s payroll processing records.
Most large companies have full-time professionals using automated systems with high levels of security. But, when you do payroll, do you push your ledger sheets aside to the corner of your desk to take a call or does your accountant pass the task around to several bookkeepers in the office?
Your payroll system should be designed with complete confidentiality in mind. Remember, it tells how much money you make, too!
Of course, all this tends to go right out the door if you work on Prevailing Wage jobs as this information is used to verify that employees are being paid the pre-determined rate for the Work or Trade Classification in which they performed work. So, even here, there is an exception….
4. Check Fraud
There are dozens of ways to change the dollar amount on a regular business check and, unfortunately, more are being invented every day. With sophisticated color scanners, copiers and printers easily available, reproducing checks to commit fraud isn’t rocket science!
Perhaps no one working for you would ever commit check fraud, but they might endorse your check over to someone who would. . . or, could it be that the person who you least suspect (your accountant, bookkeeper, even a ProAdvisor) will commit check fraud – we all read about it often enough in the newspaper. As a business owner, make sure that you monitor your checking account on a regular basis – monthly – or, that you actually balance the company account on a monthly basis and question checks appropriately.
5. Thinking that “NONE of THIS APPLIES” to me
This is the most dangerous mistake of all! Please don’t think that your business is too small, to local, or too simple to have to comply with all these constantly changing federal and state rules and regulations. Thinking that “None of This Applies to Me” is dangerous – so don’t fool yourself.
Assume that you must comply until you are definitely told otherwise. If you aren’t sure ….. pick up the phone, make some calls and ASK!
FREE Payroll Mistakes eBook:
Did you find QuickBooks Tips – Payroll Mistakes – Parts 1-4 helpful and informative? If so, request our FREE 18 page eBook; Payroll Mistakes – It’s NOT As Easy As 1-2-3, which expands on this series.
Payroll is an essential part of your business – not just a weekly, bi-weekly, or monthly annoyance. Payroll is the primary way that employees are rewarded for good job performance and retained. If you are issuing late or incorrect paychecks it can lead to dissatisfied, unmotivated workers – or worse. It’s hard to keep good employees when a company gets payroll wrong.
The relationship between employees and employers is highly regulated by the government and many of these regulations involve payroll. There are literally hundreds of things that you have to know, as well as hundreds of mistakes that you can make. As a result, the payroll process is much more complicated than anyone who has never done it can possibly know.
The consequences of some mistakes can be more serious than just your paychecks simply being incorrect. Many mistakes result in getting a very hard time from people you don’t know (and certainly don’t want to know) – the federal and state enforcement types.
Below are top 3 most common payroll mistakes which occur at year end.
1. Messing Up Employee W-2’s
This common tax form, required to be filed by employers, suffers from frequent simple errors – which boxes to use – and other more complex errors.
You must deliver a W-2 to every employee by January 31st which shows their total wages and deductions for the prior year.
- You may also need to file this form with other government agencies by deadlines that depend upon your filing method – electronic or paper.
Mismatching names and Social Security numbers is one of the most common W-2 filing errors; this will result in earnings not being properly credited to employees and problems with Social Security payments farther down the road.
- The Social Security Administration runs a toll-free Employee Verification Service where you can verify up to five employee names and Social Security numbers at a time. To use this service, call 1-800-772-6270.
Leaving out other taxable items also happens frequently.
Other problems are easier to avoid:
- Don’t put dollar signs in the boxes – government scanners can often read them as an “8”.
- Don’t use a computer or typewriter font that is too big or too light – try to stick with a 12-point Courier font.
- Try placing the numbers in the center of the boxes.
For more information, contact the Social Security Administration at www.ssa.gov
2. Messing Up Form 1099-MISC
These forms are required for your independent contractors, and the IRS finds that businesses make many mistakes with these forms. You may end up being not only the receiver of a 1099 but the provider of them, as well.
- If your business provides services and is not incorporated, you may receive a Form 1099-MISC from your own clients and/or customers totaling their payments to you for the tax year.
- Regardless of what your business structure is (sole proprietorship, partnership, corporation) you are required to send a Form 1099 to report all payments for services of $600 or more to all of your own independent contractors.
- “Currently” there is no Form 1099 is required for payments to a corporation or for goods.
Form 1099-MISC is due to your independent contractors by January 31st and to the IRS by February 28th and, yes, there are penalties for not sending or filing them on time.
The easiest way to get the information that you need to complete Form 1099 is to send your vendors a Form W-9 (especially if you think you are going to pay them more than $600.00), before paying their first invoice, which requests their name, address, and Tax ID number – either Social Security or Federal Employer ID Number.
Use QuickBooks to it’s full potential. Each vendor record has an “Eligible for 1099” checkbox complete with a spot for their Social Security or Federal Employer ID number. Create a custom field in the vendor record to track whether or not you have a W-9 on file. When entering vendor bills remember to split out costs for goods and services.
3. Failure to Keep Up-to-Date W-4 Information
How long has it been since you last gave an employee a new Form W-4 to complete? Things change – employees get married, divorced, have children – and these changes have an impact on their withholding. At the end of each year (a good time to do this is the 2nd pay period before the end of the year) include new W-4 forms with your employee’s paycheck. Indicate that you need them back by the first of the year if there are any changes.
Part 4 will cover 5 Common General/Miscellaneous Payroll Mistakes that can occur all year long.
Payroll is an essential part of your business – not just a weekly, bi-weekly, or monthly annoyance. Payroll is the primary way that employees are rewarded for good job performance and retained. If you are issuing late or incorrect paychecks it can lead to dissatisfied, unmotivated workers – or worse. It’s hard to keep good employees when a company gets payroll wrong.
The relationship between employees and employers is highly regulated by the government and many of these regulations involve payroll. There are literally hundreds of things that you have to know, as well as hundreds of mistakes that you can make. As a result, the payroll process is much more complicated than anyone who has never done it can possibly know.
The consequences of some mistakes can be more serious than just your paychecks simply being incorrect. Many mistakes result in getting a very hard time from people you don’t know (and certainly don’t want to know) – the federal and state enforcement types.
Below are 7 of the most common payroll mistakes which occur during payroll processing.
1. Poor Data Gathering
Payroll errors – overpayments, underpayments, misclassification, and job costing errors all start with the information that is contained on employee timesheets that is in turn given to the person responsible for inputting that information into QuickBooks, who then creates the final employee paycheck.
2. Improper Overtime Payments
Everyone knows hourly employees get time-and-a-half after 40 hours of work a week. Right? Not always!
Employees must be paid according to all the mandates of the Labor Department and the states. Are you calculating the overtime rate properly?
- A very common small business practice is granting compensatory overtime or “comp time” (time off) instead of paying overtime as legally required. This is illegal in most situations. Under the FLSA for example, only state or government agencies may legally offer comp time and, even then, it is subject to a long list of exclusions. Some states do allow it, but it’s certainly tricky!
Overtime is not always 1.5 times the employee’s hourly rate!
- You may have to add in other payments, such as production bonuses, shift differentials, prevailing wage fringe benefits in order to determine the overtime rate.
You must follow any state Wage and Hour regulations if they are more generous than the federal rules.
3. Ignoring Other Taxable Items
There will be times when you need to withhold taxes from more than just the employee’s normal wages.
All gifts, prizes, bonuses, and awards that employees receive are taxable, including the use of a company car.
Some Union Fringes are taxable, such as a Vacation or Health & Welfare fringe. These items should be included in the employee’s normal paycheck and set up as a taxable company contribution item type.
4. Mishandling Garnishments, Levies, or Child Support Payments
Part of your company’s payroll activities may include having to withhold and pay money your employees owe to a third party.
The government decided, long ago, that the best way to collect certain court-ordered or court determined debts was to go directly to the person’s source of income – you, the employer – and collect the money directly from the employee’s wages.
This can be a quagmire for employers of every size. There are rules for withholding, for how much an employee must be allowed to retain, and for which one of multiple claims are paid first. Naturally, the states do get involved, usually requiring that child support be paid first. But, if a federal tax levy arrives at your office first, it is paid first.
5. Mixing Reimbursed Employee Expenses with Normal Payroll
Many times I’ve seen employees bring in receipts or expense reports and the payroll clerk has added those reimbursements into the normal employee paycheck.
Don’t let yourself get caught in this situation – as you could have some “tall explaining” to do later and in some states there is a fine attached for just this sort of situation. An employee’s paycheck is just that – his compensation for the hours that he worked for you on a weekly basis and that is what should be reflected on his weekly paycheck.
If an employee submits receipts or an expense report, cut a separate check just for that and keep that money out of payroll!
6. Miscalculating State Unemployment Tax
State Unemployment Tax is an employer-paid but state-run program and each state has their own set of rules.
One common mistake that I’ve seen employers make when there is a delay in Intuit receiving the necessary information from the tax agency is that employers feel that they need to do a manual adjustment to increase the liability. This is totally unnecessary as the payroll module will automatically catch up, without any additional help from you.
7. Missing Tax Deposits and Filing Deadlines
There are substantial penalties for missing deadlines, for depositing your payroll taxes and filing the required reports.
Nearly every payroll clerk in a large company has a calendar with all the deadlines for federal, state, county and municipal tax deposits and tax filing deadlines for the entire year. You must also report the earnings and withholdings of each employee, payment to contract workers, total withholding amounts and other information. If you don’t have such a calendar, you can set up “Reminders” in QuickBooks; but you will have to look at them. On a normal day-to-day basis you naturally have other things to worry about, but if you aren’t conscious of these deadlines, you’ll miss one of them sooner or later and be faced with a hefty penalty for late payment or reporting….plus interest.
You may also be required to use EFTPS (Electronic Federal Tax Payment System) for your payments.
Part 3 of Payroll Mistakes will cover common errors at year end.
Payroll is an essential part of your business – not just a weekly, bi-weekly, or monthly annoyance. Payroll is the primary way that employees are rewarded for good job performance and retained. If you are issuing late or incorrect paychecks it can lead to dissatisfied, unmotivated workers – or worse. It’s hard to keep good employees when a company gets payroll wrong.
The relationship between employees and employers is highly regulated by the government and many of these regulations involve payroll. There are literally hundreds of things that you have to know, as well as hundreds of mistakes that you can make. As a result, the payroll process is much more complicated than anyone who has never done it can possibly know.
The consequences of some mistakes can be more serious than just your paychecks simply being incorrect. Many mistakes result in getting a very hard time from people you don’t know (and certainly don’t want to know) – the federal and state enforcement types.
Below are 5 of the most common payroll mistakes which happen during the hiring stage.
1. Misclassifying Employees as Independent Contractors -
There is one sure-fire way to avoid having to do payroll—-and that’s not having any employees.
Some small businesses avoid the costs (paying Social Security, Workers’ Compensation, State and Federal Unemployment Insurance, etc.) of having employees by classifying the people who work for them as independent contractors and paying them with Accounts Payable checks. While misclassifying employees as independent contractors will relieve your business of paying certain taxes the mistake is serious and illegal.
2. Incorrect or Missing Forms W-4, I-9, and W-9 -
It seems that every agency requires a form…they don’t necessarily want to see it but, they do expect you to have it completed and on-hand in the event that they do wish to see it during an audit.
For each hired employee you are required to have a completed Federal and State W-4 form. You are required to keep these on file. This information submitted by the employee is what you use to calculate tax withholdings from their paycheck then submitting to them a Form W-2 at the end of the year. Mismatching names and Social Security Numbers is one of the most common W-2 filing errors.
The U.S. Immigration and Naturalization Service (INS) requires a form as well – I-9 – for every employee.
Form W-9 is another very important form that you need to keep on file. It is used in conjunction with monies paid in excess of $600.00 per year to independent contractors for services performed for your company and is to be reported on Form 1099-MISC.
3. Salary or Hourly – Misclassifying a Worker’s Pay Type -
The major question here is whether your employees must be paid overtime or not.
The U.S. Department of Labor enforces the rules created by the Fair Labor Standards Act (FLSA). To make it simple: Salaried employees are “exempt” from overtime rules. “Non-exempt” employees are paid by the hour or by the day and must be paid overtime.
Many small business owners just don’t know the rules. One of the main “tests” to use when deciding which pay type is correct focuses on managing others and the authority to hire, promote, or terminate the employment of others.
Take the time to learn the rules and how to correctly apply them. Don’t ever fall into the notion that your mistakes won’t catch up with you! All it takes is one disgruntled employee calling the Wage & Hour Board and filing a complaint against you – - – to make your life miserable.
4. Misclassifying or Not Documenting an Employee Work or Trade Classification –
I see this happen most often with contractors who perform work on a Prevailing Wage job (Davis-Bacon, certified jobs, etc.) But, really, it applies to every business type – because the Workers Compensation experience rates are based on an employee Work or Trade Classification. If you work on a Prevailing Wage job your employees must be paid a specific rate according to their Work Classification.
The most common mistake I see with contractors who use QuickBooks and work on these types of projects is that they use the canned QuickBooks “hourly rate” payroll item for all employees with the applicable rate of pay for the specific Work Classification. The use of that canned “hourly rate” payroll item does not provide a good means of verifying the Work Classification/pay rate shown in the Wage Decision is indeed being paid. It’s best to create payroll items within QuickBooks for the various Work or Trade Classification that your employees are categorized under, pull those payroll items into their employee record and assign the applicable rate of pay there. Following this procedure, even a QuickBooks Payroll Summary Report will show which employees performed work under each specific Work Classification, for how many hours, and at what rate of pay. Because this information flows from QuickBooks into the certified payroll reports it makes Compliance Reviews far less stressful!
5. Not Displaying Wage Poster, Prevailing Wage Decision, or Notice to Employees –
Wage Posters, Prevailing Wage Decisions, and the Notice to Employees are not artifacts of the Industrial Age or required only in factories.
If you fail to display the Federal and State Wage Posters, are caught and convicted, the penalty for any person who willfully violates any provisions of the FLSA, including the displaying of the posters, may be imposed a fine of not more than $10,000.00 or imprisonment for not more than 6 months, or both. For more information visit www.dol.gov or your local State Department of Labor office or website.
Part 2 will cover 7 Common Payroll Mistakes Which Occur During Payroll Processing.
