Avoid These Common Payroll Mistakes When You Use an Online Payroll Provider

As many business owners are probably aware, running your payroll can be a challenging task. The number of different components and details that go into running your business’s payroll can become exhausting to keep up with. Making a mistake or overlooking something is almost inevitable when you are handling payroll on your own. 

Running payroll is one of the most important responsibilities of any business owner, but it doesn’t have to be the most stressful. When you work with a payroll service provider, you get peace of mind knowing you have the resources to help you pay your employees and taxes accurately and on time. 

PayWow is an online payroll service provider that is here to help your business run payroll with ease. Here are three common payroll mistakes that PayWow will help you avoid: 

Employee vs. Contractor

It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. Although they may be working within the same company, employees and contractors are very different, especially concerning benefits and taxes. Misclassified employees are often denied access to critical benefits and protections they are entitled to by law, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces. 

The common understanding is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what or how it will be done. An employee is someone who performs services for an employer. The employer can control what will be done and how it will be done. 

Worker classification is necessary because it controls if an employer must withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages paid to an employee. Businesses normally do not have to withhold or pay taxes on payments to independent contractors. Instead, the earnings of independent contractors are subject to self-employment taxes. Employers need to be careful not to misclassify a worker because it could be a violation of labor laws and also lead to tax consequences.

PayWow is designed to help you avoid misclassifying employees/contractors. With our software, employees and contractors can complete their onboarding themselves to ensure the proper information is entered. Employers and contractors will also have access to their pay stubs and important tax documents at all times. 

Exempt vs. Non-Exempt

The Fair Labor Standards Act (FLSA) is a law that explains how people should be treated at work. It includes standards on minimum wage, leave, overtime, record-keeping, and more. When it comes to classifications, the FLSA divides employees into two spheres: exempt and non-exempt. 

An exempt employee is not entitled to overtime pay. These are salaried employees who receive the same amount of pay per pay period, even if they put in overtime hours. A nonexempt employee is an employee who must be paid a minimum wage and is eligible to be paid overtime for work in excess of 40 hours per week. 

Understanding the distinction between exempt and nonexempt employees is key for keeping your business compliant with the FLSA guidelines. It is crucial you classify your employees correctly in order to avoid fines, penalties, and regulatory enforcement action from the Department of Labor. Misclassifying your employees could also lead to lawsuits for unpaid overtime.  

PayWow will handle your new hire reporting for you so you don’t have to worry about misclassifying your employees or incurring any penalties. 

Gross Pay vs. Net Pay

Calculating the gross or net payroll for your employees can be extremely difficult, considering all of the calculations and information you need to figure them out. However, understanding gross vs. net pay is a necessary component of your payroll. 

Gross pay is the amount of money your employees receive before any taxes and deductions are taken out. Net pay is the amount of money your employees take home after all deductions have been taken out. In other words, net pay is the money employees actually get on payday. 

It is important you distinguish these different types of pay accurately. It is also important the calculations of these numbers are accurate because both are important parts of your finances. 

Your gross income helps you determine the taxes you owe, while your net income can help you create a monthly budget. So, knowing what your gross pay and net pay are will help you to be prepared for the financial decisions in your life. 

When you use an online payroll provider you can ensure that your gross and net pay amounts are accurate. PayWow will handle all of your payroll calculations for you so there’s no need to stress over inaccurate totals. 


Mistakes are bound to happen, especially when you are running an ever-growing business. Using an online payroll provider such as PayWow will help relieve the stress of payroll mistakes. PayWow will ensure your payroll process is not only error-free but also efficient. Start using PayWow today and take advantage of our all-in-one payroll solution.

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