Everyone makes mistakes, but on payroll it seems like a lot of mistakes can be made. Below is a list of 13 of the most common payroll mistakes I’ve seen and I’ve compiled them into one list. I hope you find them useful and can help you improve your own payroll system for your business!

First, don’t back up your system. Since the person managing your payroll is likely to be human, you can be sure that he or she won’t be able to work every day. Make sure you have some means of continuing to operate your payroll program without them. You should also have a manual means of recording payroll in the event of a technology malfunction.

Second, failure to issue a 1099. When hiring an independent vendor or contractor, it’s important to remember that if you pay them more than $600 for their services, they have to file a 1099. Severe penalties are subject to anyone who do not provide this form as it is an integral part of your external employment and tax records.

Next, misclassification of employees. Making sure your employees are properly classified is imperative not only to keeping good tax records, but different types of employees are subject to different pay and/or benefit packages. Be sure to comply with all state and federal laws regarding how your employees are classified and structured within your company.

Mislabeling freelance contract workers is another mistake. Labeling all your employees freelancers is not a good way to avoid giving them compensation. The IRS also keeps a close eye on employment status, and mislabeling employees is a good way to get audited and can greatly affect your worker’s income taxes and withholding tax.

Choose Exempt or Not exempt. Employees classified as exempt are not required to accrue overtime. Simply putting an employee on pay does NOT exempt them from overtime. Classifying an employee’s status requires that he be familiar with federal and state laws, and can be different for different jobs.

Travel and displacement expenses of employees are excluded. As a general rule, accrued travel and commute expenses are not considered taxable income for a subordinate. However, if such an employee travels to a place of employment that is not his or her permanent residence, his or her travel and relocation benefits must be provided.

Miscalculating unemployment for state taxes is a very common mistake. Being late or miscalculating your state unemployment taxes can cost your business your unemployment tax credit, which can be up to 5.4%. You may also face a lawsuit if employees who have been laid off are not notified of their unemployment benefits.

Improperly recording overtime can be fatal. There are state and federal regulations regarding overtime pay. It is not limited to 1.5 times the employee’s hourly wage and may include even more calculations to be precise.

Security for employee paychecks against scammers. Technology has helped companies large and small become more self-sufficient and have more advanced tools for their activities. This same technology is also used to trick you in some situations. Check fraud is a very real thing, and you need to make sure your business is protected by watermarking or any other type of security paper method. Due to this fact, more companies are paying their employees via direct deposit, which bypasses the paper method of fraud altogether.

Mishandling employee wage debt can be crippling. It is vital to retain any type of wage garnishment, tax lien, child support, or any other court ordered paycheck withdrawal. Be sure to confirm with the ordering state that you are deducting the employee’s paycheck correctly.

The lack of registration and the acquisition of unsatisfactory data are deadly for your business. Nearly 2% of all total payroll costs are due to record keeping errors. The Internal Revenue Service requires that you keep at least four years of records, and some states require even more to be kept.

Don’t forget not to correctly record taxable items. Federal tax laws require you to account for awards and fringe benefits subject to income and employment tax withholding. Gift cards are considered cash and should never be excluded from taxable wages.

And finally, not meeting tax schedules: Depending on how late a business files its taxes, it may be subject to late deposit penalties and interest rates. Depending on how late the tax payments are, the range can vary from 2% to 20%