Before we talk about payroll mistakes architecture firms make, first: a story. I love children’s stories. They can teach many lessons in simple and entertaining ways. For example, in the tale of The Three Little Pigs, there is so much wisdom to glean from the goofy story that is ostensibly about a big, hungry wolf with strong lungs. But a valuable lesson is taught through the tale: just because something is cheaper, easier, and faster does not make it the best option. In fact, in some contexts, it is the worst choice. No one would want to stand in a skyscraper if they knew the architect had cut corners to save time, money, and effort.
Architectural firms face a comparable challenge when it comes to navigating their payroll and HR practices, where mistakes can prove to be quite costly. When Big Brother comes knocking, you don’t want to learn that your back-office infrastructure has been built with straw or sticks. Let’s look at the three most common payroll & HR weak points and explore strategies to avoid them.
Mistake #1 for Architecture Firms: Inadequate Onboarding Processes
Similar to the importance of building a solid foundation for a structure, employee onboarding sets the stage for developing comprehensive employee records. However, it can be a time-consuming and laborious task. Inadequate completion of onboarding paperwork at the outset can leave employers scrambling for crucial information when it becomes necessary. Moreover, failure to accurately complete and retain essential documents like i-9 forms and other required documentation can lead to compliance issues and potential penalties during audits.
Incorrectly completed W-4 and other tax withholding documents, or a failure to update employee information in payroll tax calculations, can prove costly for both the employee and the firm. To tackle these challenges, architectural firms need a clear understanding of the necessary documents for onboarding, the frequency of information updates, and the appropriate duration for record retention. Additionally, a streamlined process should be in place to allow employees to update their information when required.
To eliminate redundancy and frustration stemming from entering the same information in multiple places, it is ideal to have a system that integrates onboarding, record maintenance, and employee benefits. Consider leveraging available tools and software options that facilitate onboarding through features such as connectivity, electronic signatures, and digital record storage. At Whirks, we call this comprehensive approach "Attract & Hire," which is a highly sought-after add-on for architectural firms engaged in constant recruitment and hiring. By implementing efficient onboarding processes, architectural firms can steer clear of redundancy and build comprehensive employee records that ensure compliance.
Mistake #2 for Architecture Firms: Inaccurate Tax Calculations
Accurately calculating payroll taxes is paramount to the success of any architectural firm. However, the landscape of payroll tax laws is ever-changing, posing a challenge for small businesses in the industry. Miscalculations of federal, state, and local taxes can lead to penalties and fees. Additionally, life events can alter an employee's tax status, and failing to update tax documents can result in inaccurate tax withholdings. It is essential to establish a clear process for employees to update their tax forms when necessary.
Many small business owners prefer to avoid manually calculating payroll taxes due to its complexity. In such cases, it may be necessary to consult an experienced accountant or a payroll specialist. Numerous payroll software options are available that can assist in accurately calculating payroll taxes. Engaging a third-party payroll provider can offer an architectural firm the solutions to stay on top of changing laws
and avoid tax-penalties, enabling them to stay standing no matter which way the winds blow.
Mistake #3 for Architecture Firms: Misclassification of Employees
Misclassifying W-2 employees as 1099 contractors is a common pitfall encountered by architectural firms and can have significant consequences. While most misclassifications are unintentional, a few unscrupulous entities may exploit the 1099 contractor classification to evade overtime payments, Social Security and Medicare taxes, unemployment contributions, and employee benefits. This misclassification can lead to legal issues, expensive federal and state audits, penalties, and back taxes.
Determining the correct classification can be challenging, but it is crucial to get it right, particularly for federal tax purposes. Worker classification affects how the worker files their tax return and determines the payment of federal income tax, social security, and Medicare taxes. The IRS recommends a comprehensive assessment of factors falling into three categories: behavioral control, financial control, and the relationship between the parties. While this list is by no means exhaustive, here are a few factors to consider within each category:
Factors to consider when classifying an employee within architecture firms
- Behavioral control: Assess the extent to which the employer controls the work's timing, location, and methods. Consider factors such as the provision of tools, equipment, and where supplies and services are procured.
- Financial control: Determine whether the employer has control over the financial aspects of the work. Consider factors such as the worker's investment in the project, unreimbursed expenses, and opportunities for profit and loss.
- Relationship of the parties: Examine the perceived relationship between the architectural firm and the worker. Consider factors such as the provision of benefits like insurance, pension, or paid leave, as well as the existence of a written contract.
If it is determined that a worker at architecture firms falls under the 1099 contractor classification, ensure that their completed W-9 form is obtained before making any payments. This information is necessary to accurately complete the 1099 form, and penalties can be imposed for filing 1099 forms with missing or incorrect Tax ID numbers.
Need more help?
While the complexities of paying workers within architecture firms can be daunting, it is equally important for architectural firms to understand the best approach for compensating themselves from their businesses. You can find further insights on this matter in our article titled "How to Pay Yourself from Your Business."
Whenever uncertainties arise regarding worker classification, it is advisable to consult your HR team or seek the guidance of external HR professionals. Whirks offers a range of HR services and support designed to help architectural firms create a solid foundation, avoiding structural weak points and penalties. Although switching providers or enlisting new assistance may feel like a lot of work, the frustration and costs associated with persisting with incorrect practices far outweigh the perceived inconvenience. Explore our blog post titled "How to Switch Payroll Services Smoothly" to learn more.
Whirks can help architecture firms with their HR and Payroll needs
Whether it's onboarding, payroll taxes, or intricate employee classifications, Whirks is here to assist you. If you find yourself feeling like you are resting atop a house of cards, it may be time to reach out! Contact Whirks today to discover how our payroll and HR services can pave the foundation for success for your architectural firm.
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