Misclassifying workers as independent contractors instead of employees tops the list. The IRS looks closely at this because it affects payroll taxes, benefits, and worker protections. If someone works set hours, uses your equipment, and you control how they do the work, they’re probably an employee regardless of what your paperwork says. Getting this wrong means back taxes, penalties, and interest going back years.

Depositing payroll taxes late costs more than most business owners expect. Federal payroll taxes have strict deposit schedules based on your total tax liability. Miss a deadline by even a few days and penalties start accumulating immediately. The IRS doesn’t care that you were busy or forgot. They want the money when it’s due.

Calculating overtime incorrectly happens constantly. Salaried employees aren’t automatically exempt from overtime. The exemption depends on job duties and salary thresholds, not just how you pay someone. Non-exempt employees must receive time-and-a-half for hours over 40 in a workweek. Getting the exempt/non-exempt classification wrong or miscalculating the overtime rate creates liability that accumulates with every paycheck.

Missing state and local tax requirements catches businesses off guard. Arizona requires state income tax withholding registration separate from your federal EIN. If you have employees working in different cities or states, you may owe taxes in multiple jurisdictions. Each one has its own registration, rates, and filing deadlines. Outsourcing payroll services helps you stay current with requirements across all the places you operate.

Using outdated tax rates happens when software isn’t updated or when someone does manual calculations with old tables. Tax rates and wage bases change annually. Social Security wage caps adjust. State rates shift. Using last year’s numbers means every paycheck is wrong in ways that compound throughout the year.

Poor record-keeping creates problems that surface later. You need W-4 and I-9 forms for every employee. You need records of hours worked, wages paid, and taxes withheld. When the Department of Labor or IRS asks for documentation, “I don’t have that” isn’t an acceptable answer.

The common thread is that payroll errors don’t announce themselves. They accumulate quietly until an audit, a disgruntled employee, or tax time reveals the damage. By then you’re looking at penalties, interest, and potentially years of corrections.

Most small businesses underestimate how much can go wrong because payroll seems straightforward. Pay people, withhold taxes, send the money to the government. But the rules are specific and enforcement is real. Working with a Queen Creek area bookkeeper who understands these requirements removes the guesswork and catches errors before they become expensive problems.