Payroll is complicated. There are a lot of tasks, laws, forms, and calculations. With so many things to remember, it’s easy to make a mistake. You should not take payroll errors lightly. Mistakes can result in penalties, interest, and even jail time.
The best way to avoid payroll mistakes is by knowing what to look for. You need to know the common hang-ups and how to prevent them in the first place. And if you’re already making mistakes, you need to learn how to correct them as soon as possible.
You are probably not alone if the day you process payroll is your most stressful time of the week. Whether you are the church bookkeeper, treasurer, or human resources professional, managing the payroll process can be challenging. The risk of missing a deadline, miscalculating a clergy housing, or forgetting to take a regulatory or tax change into account can throw everything off. You want to make sure employees receive their money on time and ensure the process is as efficient and practical as possible.
Avoid These Common Payroll Mistakes
- When a church hires an employee, one of the initial decisions that must be made is whether to treat the worker as clergy, non-clergy employee or contractor. This decision may seem insignificant, but it has huge implications when it comes to payroll. Each of these classifications has different taxes, reporting, and filing requirements
Make sure they’re eligible to work in the U.S.
- It’s your responsibility to make sure all your employees are legally allowed to work in the U.S. If you hire someone who doesn’t have the right employment eligibility, you could face a variety of penalties.
- Before or on their first day on the job, your new employee needs to fill out section one of Form I-9, which includes their contact information, Social Security number, and employment eligibility.
Report your new hires to your state employment agency.
- You need to report newly hired and rehired employees to your state’s labor agency.
Run a background check.
- Once you’ve chosen a candidate for the role and made an offer, you might want to run a background check. Also known as a pre-employment screening, it’s a background check is an important step to help keep your church, employees, and members safe. (This is how to hire employees who are who they say they are.) Applicants must always authorize your church to run a background check.
Collect a completed Form W-4 from each employee.
- Your new employee needs to complete Form W-4 (Employee’s Withholding Certificate), which asks them how much federal income tax to withhold from their pay.
Not Issuing 1099s to Vendors.
- Any vendor, including independent contractors, must receive a Form 1099 if he or she makes more than $600 from his or her services. Not issuing these forms in a timely manner can lead to IRS penalties. These penalties range from $30 to $100 per form, which can add up quickly.
- Employee prizes like gift cards and awards are necessary to report with income if they exceed a cash equivalent of $75 or more. For example, if an employee wins a $300 Visa gift card, that is enough to be reported with employee income. These are taxable wages, and never reporting items like this can result in some pressure from the IRS.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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