Category: Accounting

Common Payroll Mistakes That Small Businesses Make All Too Often

Achieving a high level of payroll performance isn’t easy – but simple errors could be making your job harder than it needs to be…

Although it takes place behind the scenes, every good business owner knows that payroll is integral to their operation. Unfortunately, that also means any problems in the process, however minor, can affect almost every level of a business. Although fundamentally concerned with paying employees on time, payroll is also about navigating the labyrinth of detailed legal regulations that come with calculating employees’ tax and social security contributions – and avoiding costly penalties for non-compliance.

Recent research showed that payroll mistakes cost UK employers over £700 million in the 2015/16 financial year – the combined result of fines collected by HMRC. Beyond the damage of financial penalties however, payroll mistakes also chip away at the confidence of both employees and clients – and quickly erode a business’ reputation within its professional community.

The common mistakes…

The good news is most common payroll mistakes can be handled, mitigated or avoided through a combination of employee training, and forward planning. To help you get to grips with the challenges your organisation might be facing, why not check out this list of simple mistakes that affect small business’ payroll departments…

Payroll size

When you build your payroll department, it’s important to think carefully about the job you need it to do. Too many small businesses miscalculate at this stage and create a payroll which doesn’t fit their business needs – either too large to be cost effective, or too small to manage the administrative burden placed upon it. While this error may not have immediate effects, problems will inevitably emerge down the line in the event of an unexpected payroll delay or compliance challenge – when it’s much harder to make adjustments.

Numerous factors are important here, including your business’ commercial sector, your location, number of employees, average work hours, and more. Ultimately, the information you gather about your prospective payroll’s shape and size will help you make ongoing decisions about the number of administrators you hire, the type of software they use, and what kind of training they need.

Observing deadlines

One of the most basic duties of a payroll department is to meet a number of important dates and deadlines on the tax calendar. Don’t neglect these tax basics: from understanding when the tax year starts and ends, to meeting remittance deadlines, every member of your payroll team should know what needs to happen, and when – or risk incurring compliance penalties.

Ensuring employees are familiar with the tax landscape isn’t difficult – and could be as simple as marking important dates on a shared calendar at the start of every tax year. Similarly, payroll employees should understand how to communicate with, and report to, the relevant authorities they’ll be dealing with in their role as administrators.

Failing to automate

Putting this one right on top of the list makes sense because poor systems and controls are the root cause of most of the other payroll mistakes listed below. If you don’t have an automated system in place, you can easily make errors in calculating employee salaries and deductions, and in recording employee information and transactional data.

Failing to automate also means the payroll team spends most of its time on compliance and admin issues, when it should ideally be focusing on helping the business understand payroll costs, identify trends, enable better employee experiences, and provide strategic advice to finance and management teams.

Not putting checks and balances in place

Payroll fraud is a major risk for businesses today and is often discovered by accident, only after the company has lost a vast amount of money. Many small- and medium-sized businesses are vulnerable to payroll fraud because they don’t put appropriate checks in place. For example, they often give one accountant or payroll manager complete access to the payroll system and company bank account.

The simplest way to prevent most incidents of payroll fraud is to enforce segregation of duties in the payroll department. Employees calculating pay rates and accumulated hours for payroll should ideally not be the same people who process the payments. Different people should have responsibility for capturing payroll data and for managing access to the system as well as adding and removing employees from the payroll. Yet another person could be tasked with checking whether the numbers add up.

Not Maintaining Data Integrity

In the immortal words of bookkeeper and Knit customer Sherri Lee-Mathers, “if you put garbage in, you’re going to get garbage out.” By this she means that the kind of data you input into your new payroll system will influence what you get out. If the data is inaccurate from the start, it may become embedded in the system, and result in significant errors over time.

In order to avoid the dreaded “garbage in, garbage out” scenario, it’s important to prepare your data well in advance. Prior to making the switch, take the time to:

• Audit your current data—all of it.
• Cleanse your data of anything you might not need anymore (keeping in mind that the CRA requires you to “keep all required records and supporting documents for a period of six years from the end of the last tax year they relate to”).
• Identify any missing payroll fields.
• Request any important documents from your current provider, such as copies of all Payroll Register Reports and copies of pay stubs for all employees, so you have a complete set of records for each employee.

While it may seem like a time-consuming process, taking the time to check for any inaccuracies or inconsistencies upfront will save you from countless errors down the line.

Not Customizing the Platform

For those unfamiliar with payroll or used to doing things manually, payroll software may seem like a kind of “one-size-fits-all” solution. As a result, many payroll administrators sometimes stick to the default settings on their new platform. This often means that things are running less efficiently than they could be and that the company is not enjoying the full benefits of the software.

In reality, many of today’s cloud-based payroll systems are extremely flexible and can be configured to fit your company’s exact needs. Whether that means adding custom income types or running off-cycle payrolls, many platforms can be adjusted to your exact specifications. Therefore, when implementing a new payroll software, it can be beneficial to customize the platform upfront.

Misclassified Employees

The Problem

Companies often don’t realize that not everyone who works for them is actually considered an employee. If you hire independent contractors, temporary employees, or freelancers, they are not treated the same as employees when it comes to payroll.

In addition to determining their eligibility for benefits, the distinction dictates whether federal income and employment taxes are withheld. It also determines if you need to use a W-2 (for employees) or a 1099 (for non-employees) when reporting to the IRS.

Misclassifying an employee can result in costly fines and other administrative headaches.

The Solution

Any time you’re hiring someone, make sure you understand exactly how they’ll work within your organization according to the IRS’s standards.

The IRS has resources available to help determine if a worker is an employee or an independent contractor. Also, if you know you’ve made a mistake, you can see if you qualify for the Voluntary Classification Settlement Program—but keep in mind that there will still be penalties.

Overtime calculation flaws

Overtime calculations are the primary components in several payroll disputes. The average work hours permitted and the number of hours taken into account for overtime could be the crux of the dispute.

According to the Periodic Labour Force Survey of 2017-18, conducted by the National Statistics Office, most of the employees in the country work more than 48 hours per week.

How to avoid

Knowing the current overtime laws and adding the overtime bonus in the pay, on time, would avoid problems. This is another place where having an outsourced team for payroll management can solve your concerns.

You need up-to-date information about any amendments that the Labour and Employment ministry brings. The payroll team pays undivided attention to all these aspects to help secure your organization from legal issues.

Small Business Taxes: What Information Does My Accountant Need?

Preparing small business taxes by yourself can be daunting, so hiring an accountant or tax expert is a great way to save time and create peace of mind this tax season. However, you don’t want to show up to your tax appointment empty-handed. Accountants expect you to bring certain documents and be prepared with the information that is needed to complete your tax return.

Personal Information

First things first. You will need to furnish your accountant with basic personal information including your legal name, current address, and social security number. The easiest way to provide this information is to bring your social security card to your tax appointment.

Previous Year’s Tax Return

Make sure to come with your previous year’s tax return. This 1) helps them get a better understanding of your business, and 2) gives quick information about the deductions your company has (or hasn’t) been taking.

Financial Business Reports

Your accountant will need copies of your basic financial reports. These include:

Profit and Loss Report (or the Income Statement)

Balance Sheet

Statement of Cash Flows

The profit and loss report shows your business’s overall profit (or loss) for the year, while the balance sheet displays your company’s assets and liabilities. The statement of cash flows shows all transactions affecting your business’s cash account.

You should be able to print these basic financial reports from nearly any accounting software program, though report availability varies from software to software. Contact your accountant or tax preparer to see if there are any additional reports they might require or find helpful.

What to look for in an accountant: helpful tips

Owning and running a business is not easy. It can be stressful, it requires hard work, knowledge, and dedication, and above all else, it requires a great deal of time, which for many business owners, is an asset they simply do not have. Because of this, a large percentage of businesses are cutting corners and attempting to save themselves as much cash as possible, which results in them attempting to handle their books themselves, which more often than not, only leads to disaster a little further down the line. Here at Phoenix, we recognise the importance of proper accounting and book-keeping, which is why we offer our cloud based accounting services to clients up and down the UK. Hiring an accountant/accounting firm is easy, hiring an efficient and effective accountant/accounting form however, is a whole other kettle of fish entirely. If you’re on the lookout for an accountant for your business, here are 4 things you should look for.

Effective communication

One of the first things you should look for when considering hiring a prospective accountant is just how well, or how poorly, they’re able to communicate with you. By this, we don’t mean you should look for accountants that are well-spoken and prolific when it comes to writing emails and reports, we mean you should look for accountants that can help you to understand the technical jargon. They need to know what they’re doing of course, but they should be able to communicate with you, in such a way that you’re able to easily understand what they’re talking about, without being confused by big words and technical terms that mean virtually nothing to you. Rather than simply being there to provide a service, they should become a resource, an extension of your business, helping you to expand and enhance your knowledge of how to run and manage your business more efficiently

Useful to your business

Another thing you should look for in potential accountants is whether or not they can actually be truly useful for your business. For example, if you do encounter problems regarding your books, taxes, or finances etc, are they able to come up solutions and perhaps make recommendations of how to manage the financial side of your business more efficiently?

An understanding of your business

Of course, you’re hiring the accountants to take care of your books, taxes, and finances etc, which is obviously what they specialize in, but despite that, they should ideally have a basic understanding of your business and what it is that you actually do. are they willing to learn a little more about your company, can they answer questions about your business if put on the spot, and above all else, if they can’t are they willing to learn? Obviously they don’t need to know every single minor detail of your business, but a basic understanding can, and will, prove very useful at some point down the road.

Cloud based services

Let’s face it, as modern technology now plays such a vital role in day to day life, the importance of ‘being on the cloud’ as it were, is absolutely essential if you wish to get anywhere in the business world. Cloud based accounting services are incredibly beneficial for so many reasons. To begin with, cloud based software can be accessed anywhere with a connection to the internet, making it ideal for people on the move and out of the office a lot. It is cost effective as monthly payments can be made as opposed to large lump sums in one go, and it is incredibly user-friendly. Your accountant can easily share info with you, and vice versa, so if you do encounter any monetary issues, they can easily help you out. As an example, you may wish for your accountant to take a look at your VAT returns before they’re filed. No problem, you can share them in a matter of seconds, and then patiently await your feedback.

Best accounting software: free and paid versions to manage accounts

Accounting software is a necessity when trying to run your own business, and the sooner you implement a good accounting software solution the better. While there are standalone platforms for invoicing software and tax software, generally your accounting platforms will be more comprehensive.

However, while there are some very good paid-for accounting programs around, there are also a strong number of free accounting software solutions currently available, as well as bookkeeping software. While some of these are simply free tiers for paid software, others are freeware programs you can download and use without charge to help with budgeting. There are also time management apps that can integrate for consultants or freelancers who need to charge by hour

This can be very helpful for start-ups who want to keep their accounts organized without committing to a solution, while also reducing initial costs. Other businesses might simply prefer them because they often allow for a greater control of your data, by running on your own machines rather than on third-party clouds.

The package has plenty of features – invoicing, expense tracking, time tracking, a host of business reports, even an option to take credit card payments (for a 2.9% plus 30 cents transaction fee) – but a straightforward interface aimed at non-accountants ensures you’ll be up-and-running right away.

Despite the simplicity, there’s real depth here. You can bill in any currency, save time by setting up recurring invoices, allow customers to pay via credit card by checking a box, and even automatically bill their credit card to keep life simple for everyone.

How to Become an Accountant: Education and Career Roadmap

Should I Become an Accountant?

Accountants can work in the public and private sectors providing consulting, auditing, and analyzing services. Job duties include the review and maintenance of financial records for businesses, the preparation and submission of tax documents for individuals and companies, the assessment of financial operations, and the recommendations for fiscal efficiency to responsible parties, as well as day-to-day management of funds. Longer hours are usually required during tax season.

The education needed to be an accountant is normally a bachelor’s degree. Many accountants pursue voluntary certification as a way of demonstrating expertise to future employers or clients. Becoming a Certified Public Accountant (CPA) is necessary for those who file with the Securities and Exchange Commission (SEC)

Meet Accounting Degree Requirements

A bachelor’s degree is generally the minimum degree you need to be an accountant, especially an entry-level position in the field. Bachelor’s degree programs in accounting are available by that title specifically, or accounting specialization options may be present in broader programs like business administration. Accounting degree requirements include courses in accounting, tax accounting, and auditing, but some also involve additional coursework in management, marketing, and finance.

Success Tips:

Find an internship. An internship with an accounting firm or an organization’s accounting department provides experience that may prove useful for securing a job after graduation. Accounting interns might assist in preparing financial statements, conducting audits, and communicating with clients. Additionally, an individual will often learn about accounting software programs.

Join a professional association. Joining an accounting organization can give you access to networking and career development opportunities. There may be a student chapter on campus, or you can get an individual membership. The associations may have special membership rates for students.

Gain Work Experience

Work experience can help you advance in the field of accounting, and some states require it to take the Certified Public Accountant (CPA) exam. By taking an entry-level accounting position, or possibly an internship, aspiring accountants have an opportunity to observe the duties and responsibilities they’ll perform on a daily basis.

Ways Technology Has Changed The Accounting Industry In The Last 5 Years

Over the last decade, technology has been developing at an exponential rate. It has had a big impact on the way we live our personal lives, and the effect on the ways we work has been even greater. Over the last five years, technology has changed how we manage many different aspects of business operations. Accounting is no exception.

Access to faster software that can perform more complex functions, as well as interconnected technology has made accounting both easier and more efficient. Indeed, organizing financial information, analyzing data, and measuring economic activity has never been simpler.

CLOUD-BASED SYSTEMS

The internet is something all businesses should learn to utilize fully. Too often, we think of the internet as nothing more than the place our company website and social media accounts reside. However, there is a momentous change that is currently sweeping across the corporate world: the cloud.

WHAT DOES THIS MEAN TO YOUR ACCOUNTING BUSINESS? HERE ARE JUST A FEW WAYS IT CAN IMPROVE YOUR PROCESSES.

You can now analyze data in real-time because everyone in your firm has access to the most recent data.

Cloud computing makes e-format documents from the web easier to collect and use.

You have unlimited storage space as your business grows—no matter how large your accounting files are or how many you have.

You can synchronize files across multiple platforms.

Your files are secure and automatically backed up on the cloud.

MORE DIVERSE ROLES FOR THE ACCOUNTANT

If there’s one aspect of accounting that professionals dread the most, it’s the very tedious and tiresome task of compiling and computing data. However, with the advancement of technology, you can now do all that with just a click of a button.