“My payroll company handles all of it. I don’t have to worry about it.”
I hear this constantly. And while it’s great that you have someone managing payroll, I need to ask: do you verify that they’re doing what they’re supposed to be doing?
Because I’ve seen some eye-opening stuff when we dig into payroll that “supposedly” was being handled.
Taxes not filed, and deductions not taken correctly. Errors that went unnoticed for months. Overpayments to some employees and underpayments to others.
And the business owner had no idea because they never looked.
Why Payroll Is Different From Other Tasks You Delegate
Payroll isn’t like hiring a marketing consultant where “good enough” is acceptable.
With payroll, there are specific legal requirements:
- Correct gross-to-net calculations
- Proper tax withholding (federal, state, local)
- Payroll taxes must be deposited on specific schedules
- Payroll tax returns must be filed (941, W-2s, 1099s, state returns)
- Wage and hour laws must be followed
- Deductions and benefits must be handled correctly
If any of these are done wrong, you, the business owner, are liable. Not the payroll company.
The IRS doesn’t care that you hired a third party. If payroll taxes aren’t paid, they’re coming after you.
Your state labor department doesn’t care if it was a mistake. If overtime was calculated wrong, you could face penalties.
So “I hired someone to do it” is not a defense. You’re still responsible.
Which is why you need to verify.
Is Your Payroll Being Handled Right?
You’re responsible for payroll, legally and financially. If something goes wrong, the IRS comes after you, not your payroll provider. Let’s make sure yours is set up correctly.
Get a Quick Payroll Assessment
We’ll review your payroll setup in 20 minutes and let you know if there are any issues you need to fix.
What Your Payroll Provider Should Be Doing
Here’s the basic list of what a payroll provider handles:
Paycheck calculation:
- Gross pay calculation based on hours/salary
- Federal income tax withholding
- FICA withholding (Social Security and Medicare)
- State income tax withholding (if applicable)
- Local income tax withholding (if applicable)
- Voluntary deductions (401k, benefits, insurance)
- Court-ordered deductions (garnishments, child support)
- Proper net pay calculation
Tax deposits:
- Federal payroll tax deposits (on correct schedule)
- State income tax deposits (on correct schedule)
- Local tax deposits (if applicable)
- FUTA and SUTA payments
Tax filing and reporting:
- Form 941 (quarterly federal return)
- State quarterly payroll returns
- Annual W-2s for employees
- Annual 1099s for contractors
- FUTA annual return (Form 940)
- Year-end payroll reconciliation
Employee records:
- Maintenance of employee files
- I-9 documentation
- W-4 forms
- State withholding forms
- Benefits elections
- Deduction authorizations
Compliance:
- Posting of required labor law notices
- Compliance with wage and hour laws
- Accurate recording of hours worked
- Proper classification of employees vs. contractors
- ACA reporting (if applicable)
That’s a lot, and if any piece of it isn’t done correctly, you have problems.
What You Should Be Verifying Monthly
You don’t need to become a payroll expert. But you should spot-check these things every month:
1. Paycheck Accuracy
Review paychecks (or payroll registers) and verify:
- Gross pay matches what you expect (hours × rate or annual salary ÷ 26, etc.)
- Deductions are correct (they should match what employees authorized)
- Net pay makes sense (gross minus all deductions)
- Tax withholding looks reasonable
Red flags:
- Same amount every week when hours vary
- Deductions that don’t match authorizations
- Net pay that seems way too low or too high
- Employee complaints about incorrect paychecks
2. Payroll Tax Deposits
Verify that federal and state payroll taxes are being deposited. Don’t just assume.
How to verify:
- Check your business bank statements for deposits to the IRS (EFTPS) and state revenue department
- Log into your IRS account (EFTPS or Business Services Online) to confirm deposits were received
- Compare deposits to what you calculated they should be based on payroll
Red flags:
- No deposits showing in your bank account
- Deposits that don’t match payroll amounts
- Missed deposit deadlines
- IRS notices about non-payment
3. Payroll Report Accuracy
Request a payroll register or summary and verify:
- Total gross pay
- Total withholdings and deductions
- Net payroll (total amount paid to employees)
- Employer taxes (payroll taxes you owe)
Red flags:
- Numbers that don’t add up
- Inconsistent formatting or missing data
- Inability to reconcile to your bank account
4. Employee Count and Classifications
Verify that your payroll provider has the right people classified as employees vs. contractors and with the correct job titles.
This matters because:
- W-2 vs. 1099 classification has tax implications
- Job titles might affect wage and hour rules
- Employee count affects benefit and compliance requirements
5. Year-to-Date Numbers
At least quarterly, check the year-to-date figures. They should increase consistently based on payroll frequency.
If someone suddenly shows a drop in YTD (which shouldn’t happen), something is wrong.
Common Payroll Mistakes (And How to Catch Them)
Here are mistakes I see regularly:
Mistake #1: Incorrect Tax Withholding
An employee filled out a W-4 years ago. Their situation has changed, but the withholding hasn’t been updated.
Result: They’re overpaying and getting a huge refund or underpaying and owing taxes.
How to catch it: Ask employees directly if they’ve reviewed their W-4s recently. Have them check their pay stubs. If something seems off, investigate.
Mistake #2: Deductions Not Being Taken
An employee authorized a 401(k) deduction. But the payroll company never set it up.
Result: The employee isn’t contributing to their retirement, and the business is missing the tax deduction.
How to catch it: Review benefit authorizations annually and verify they match actual deductions on paychecks.
Mistake #3: Contractor vs. Employee Classification
Someone has been working for you for a year. You’ve been issuing 1099s. But based on the nature of the work, they might be an employee.
Result: You could owe back payroll taxes, penalties, and benefits.
How to catch it: Review your classifications. Ask: Do I have control over how they work? Are they integrated into my business? Could they work for a competitor? If the answer is yes to these, they’re probably employees.
Mistake #4: Overtime Not Being Calculated Correctly
Your payroll company is set to automatic overtime, but it’s not calculating correctly for the way your business works.
Result: Employees aren’t getting paid for overtime they worked, or you’re overpaying.
How to catch it: Review the time tracking and paycheck calculations. Verify that overtime rules are correctly applied (1.5x after 40 hours, etc.).
Mistake #5: Tax Deposits Being Missed
Sometimes payroll companies mess up and miss a deadline. Sometimes they underestimate how much is owed and don’t deposit enough.
Result: The IRS notices and issues penalties and interest.
How to catch it: Track deposit dates and amounts. Compare to what should have been paid based on payroll.
Mistake #6: Year-End Reporting Errors
W-2s are prepared incorrectly. Box 1 (wages) doesn’t match what went out. Deductions are coded wrong.
Result: Your employees get wrong info to file their taxes. This causes IRS reconciliation issues, necessitating amendments.
How to catch it: Request year-end payroll reports before W-2s are finalized. Verify accuracy and request corrections if needed.
The Quarterly Payroll Audit You Should Be Doing
Every quarter, spend 30 minutes doing this payroll check:
Step 1: Pull your payroll register for the quarter
Step 2: Verify total employees and that all are accounted for
Step 3: Check total payroll matches what you think you paid
Step 4: Verify all tax deposits were made on time
Step 5: Cross-check with your P&L (salary expenses should match)
Step 6: Look for any anomalies or unusual items
Step 7: Ask your payroll company to explain anything you don’t understand
That’s it. Thirty minutes quarterly, and it catches most problems before they become big issues.
Red Flags That You Need a New Payroll Provider
If you notice any of these, it’s time to make a change:
- You can’t get a clear answer about what they’re doing
- They’re consistently late with payroll
- They miss tax deposit deadlines
- Year-end documents (W-2s, etc.) are inaccurate or late
- They don’t respond to questions promptly
- There are mathematical errors in calculations
- They’ve caused IRS or state issues
- You don’t understand your own payroll because they won’t explain it
- Employees complain about incorrect paychecks
- They’re charging you for corrections that should be free
A good payroll provider is responsive, accurate, and transparent. If you don’t have that, find a new one.
Concerned Your Payroll Provider Isn’t Doing the Job?
We can help you verify what’s happening with your payroll and fix any problems before they become expensive issues.
Schedule Your Payroll Verification Review
We’ll audit your payroll, identify any issues, and show you exactly what needs to change to get it right.
Choosing a Better Payroll Provider
If you need to switch, look for:
Reliability: Never missed a deadline, always accurate, and responsive to questions.
Transparency: They explain what they’re doing and why. You should understand your payroll.
Compliance: They understand your state’s specific requirements and keep up with law changes.
Integration: They work with your accounting software (e.g., QuickBooks, Xero).
Support: You can reach them whenever you need to, and they have a system to track issues.
Cost: You understand exactly what you’re paying for and why.
Popular options include ADP, Guidepoint, Paychex, and QuickBooks Payroll. Some business owners also work with local bookkeeping services that handle payroll.
The best choice depends on your business size, complexity, and needs.
Don’t Assume. Verify.
Your payroll provider might be doing a perfect job. Great! But don’t assume it; verify it.
Because if something goes wrong with payroll, you’re the one who deals with the consequences. The IRS comes after you, and your employees complain to you. The liability sits with you.
So, spend 30 minutes quarterly checking. Ask questions, and make sure you understand what’s happening.
You can trust your payroll provider, but you also need to be responsible for your own business.
Need Payroll Review or Management?
We can help you:
- Audit your current payroll and verify accuracy
- Fix payroll issues before they become big problems
- Implement better verification systems
- Coordinate with your payroll provider for accuracy
- Handle payroll management if your current provider isn’t working
- Ensure compliance with tax requirements
- Prepare clean payroll records for your accountant
Don’t guess about payroll
Schedule Your Payroll Verification Review
We’ll audit your payroll, identify any issues, and make sure you’re set up correctly going forward.
About Fruitful Enterprises: Payroll is too important to leave to chance. We help business owners verify and manage their payroll so they can be confident it’s being handled correctly.