Production payroll mistakes can threaten the financial health of projects big and small. From weeks of lost time to major payroll tax penalties, the wide-ranging consequences of payroll errors have the potential to derail virtually any budget.
But while all sorts of common mistakes happen during payroll processing, the good news is that you have the power to prevent each and every one of them.
The only trick is in knowing how.
In this post, we’ll point out five of the most expensive payroll mistakes that production companies make and teach you how to avoid payroll errors on your own with the help of the right tools.
Let’s jump right in.
On a fundamental level, everything about payroll depends on having correct information, and production payroll mistakes naturally arise when processes begin with incorrect information. It’s no surprise then that many of the most common payroll problems encountered in production stem from simple errors made when filling out basic paperwork, like a crew member’s W-4 or I-9.
Inaccurate information may result in any one of several payroll scenarios leading to trouble with the IRS.
For example, incorrectly filled-out paperwork can cause production payroll mistakes in employee withholding calculations, a seemingly simple payroll discrepancy that could lead to a complex mess of problematic payroll issues and even steep payroll tax penalties down the road.
Alternatively, payroll errors can occur when a crew member mislabels their resident and work states, a common payroll discrepancy that causes issues for productions budgeting travel shoots.
The consequences of payroll errors stemming from incorrectly filled-out tax documents will vary. Though payroll mistakes laws often provide opportunities to make payroll corrections under the right circumstances, income or withholding miscalculations could result in payroll tax penalties in the form of a “Failure to Deposit Penalty.”
But consequences could reach beyond official payroll tax penalties.
Many states offer film tax credits, and some of those states stipulate specific tax withholdings. Georgia’s film tax credit, for instance, specifies that payments made to a loan-out company require a 6% Georgia income tax withholding. Payroll mistakes due to paperwork errors could therefore jeopardize a production company’s ability to collect all or part of a state tax credit, potentially doing serious damage to a project’s budget and profitability.
Tax cleanups are time consuming and expensive. When it comes to incorrect information, it’s a whole lot easier to catch production payroll mistakes upfront than it is to figure out how to correct payroll errors on the back end.
If you’re managing payroll manually, the only way to avoid payroll error underpayments or other similar payroll issues is to check all paperwork by hand.
But hopefully, you’re not doing that.
You don’t really have time to, plus, it’s super easy to miss something insanely important.
Production companies move too fast and have too many moving parts to not use payroll software. Production payroll software can reduce human error and help you eliminate common payroll problems faster and more efficiently in the process.
Many production payroll mistakes can be prevented or caught automatically with digital startwork features, and customized profiles for individual crew members make it easier than ever to spot a payroll discrepancy in personal information.
The misclassification of employees as independent contractors is one of a few common payroll problems that are particularly prevalent in the entertainment industry.
When the vast majority of crew members work on a freelance basis, the line between employee and contractor may understandably seem blurry, and it’s only natural that production payroll mistakes occasionally occur.
But why does it matter?
Under the Fair Labor Standards Act (FLSA), employees and independent contractors are afforded different sets of critical benefits and labor standards protections. For our purposes, this means that a correct classification will alter your pay obligations to the worker and that a misclassification will result in one or more payroll mistakes.
The difference between exempt and non-exempt employees can similarly impact production payroll scenarios.
The time and energy required to figure out how to fix payroll errors as a result of crew member misclassification are burdensome enough on their own, but such payroll mistakes often lead to additional payroll tax penalties.
The consequences of payroll errors due to the misclassification of workers may include fines, collection of past due payments, and even criminal penalties, if the misclassification is found to be intentional.
The best way to avoid production payroll mistakes due to misclassification is to understand how employees and contractors are classified in the first place.
In California, labor classifications are currently dictated according to the criteria outlined in Assembly Bill 5 (AB-5), which uses a three factor test to determine whether a worker is an employee or contractor.
Note, however, that other states utilize their own classification tests.
You’ll need to follow all criteria relevant to your individual production to avoid misclassification payroll penalties.
To learn more about working with Assembly Bill 5, check out Wrapbook’s in-depth webinar on everything producers need to know about AB-5.
Payroll software like Wrapbook can further help you prevent misclassification payroll mistakes by increasing transparency between crew members and production companies. Wrapbook’s system guides users through entering correct information and keeps clear records for reference at any point at which they may be needed.
Unfortunately, many common payroll problems can be traced to miscalculated payment amounts. Even a single paycheck discrepancy might lead to multiple, compounding production payroll mistakes.
Payroll issues of this type generally begin with something simple. It could be an innocent misunderstanding of state overtime laws, meal penalties, or the construction of a crew member’s day rate. It could also be something more complicated, like trouble in working with dual pay rates or a strangely negotiated kit fee.
But no matter how they begin, miscalculations are bound to create problems down the line.
If you commit a miscalculation error, you’ll likely have to figure out how to fix payroll errors on multiple fronts at the same time.
The consequences of payroll errors in miscalculation can be numerous, but they all start in the same place. One or more of your crew members will experience a paycheck discrepancy, an under- or overpayment that you’ll have to fix with a payroll correction.
And if the miscalculations occurred unnoticed over an extended period of time, untangling the knot of how to fix payroll errors that resulted could take literal years of labor.
Then the payroll tax penalties begin.
Simply put, the IRS can and will enforce payroll tax penalties for submitting an incorrect amount of payroll. While the opportunity to make payroll corrections without additional penalty may be afforded to first-time offenders or for mistakes committed under reasonable circumstances, the IRS is permitted to charge fines based on a percentage of the overall payroll amount in question.
According to IRS payroll error statistics, over $5 billion in payroll penalties for employment taxes were assessed in the fiscal year 2020.
Almost everything about payroll depends on correct calculations. Avoiding the common payroll problems associated with miscalculation is, therefore, a matter of diligence, discipline, and raw know-how.
To that end, manual payroll calculation will be prone to some degree of error, but advanced payroll software can dramatically reduce those risks by automating critical features.
The ability to approve, edit, or decline timecards in a matter of seconds is also hugely critical when it comes to preventing incorrect information and subsequent payroll penalties.
Wrapbook, for example, streamlines timecard submission and enables users to generate detailed calculation breakdowns, empowering producers with a substantially higher level of expense visibility in the process.
Wrapbook can even automatically calculate commercial LA IATSE & Teamster timecards.
The IRS expects employers to file information and payments in a timely manner. Failing to do so could result in steep payroll penalties that increase over time.
On a recurring basis, production companies are required to deposit and report employment taxes in proportion to wages paid to the company’s employees. The IRS dictates clear employment tax due dates that must be followed to avoid tax penalties.
On an annual basis, production companies also face deadlines for submitting tax information returns, like W-2s or 1099s, to both the IRS and individual employees.
Unlike other common payroll errors, there are no methods for how to correct payroll errors due to blown deadlines.
If you’re late, you’re late.
And you’re likely going to pay some fines.
The failure to deposit employment taxes on time will result in a-
wait for it…
The IRS calculates these payroll penalties as “a percentage of the taxes you did not deposit on time, in the right amount or in the right way.” The exact percentage amount fined begins at 2% and builds to a peak of 15% of your unpaid deposit.
If that’s not enough, Failure to Deposit payroll penalties may also acquire interest to be paid on top of the initial penalty amount.
Information return payroll penalties are calculated a bit differently. They begin with a flat fee of $50 per “information return or payee statement,” then build up over time.
If the IRS determines that the production company is intentionally disregarding relevant deadlines, the per-document fine shoots up to over $500, with no maximum total penalty amount.
On top of the direct financial payroll penalties incurred by missing deadlines, a failure to deposit taxes or file paperwork could also impact a production company’s employees. The resulting strained relationships and collateral financial damage are severe consequences all on their own.
The only method of how to correct payroll errors due to missed deadlines is to prevent them from happening in the first place. Simply put, a production company needs to meet all of its IRS deadlines on time all the time.
Of course, payroll software can ease the process by automating employment tax calculations, tax deposits, and even document submission. With the right production payroll software, generating and sending returns is as simple as the click of a button.
But just as important, is knowing what kind of payroll company you’re working with.
For production companies, an Employer of Record is a no-brainer. These are payroll companies that take on the burden of tax liability so you don’t have to.
Wrapbook acts as a digital employer of record, administering payroll compliance and workers’ comp insurance on behalf of employers while ensuring crew is paid on time.
For a bit more on the role and responsibilities of your payroll provider vs. your company’s role, check out #11 on our list of the 12 Questions to Ask Your Payroll Provider post.
Many common payroll errors can be traced back to inadequate or ill-organized record-keeping, but it turns out that the record-keeping itself can be a payroll mistake.
The FLSA requires that employers keep payroll and other records for at least three years, and production companies are no exception to that rule.
These records must be adequately detailed and open to inspection by representatives of the U.S. Department of Labor.
**Additionally, some states and localities may maintain their own record-keeping mandates that differ from those of the federal government.
As of 2022, for example, California’s Senate Bill No. 807 requires that employers maintain personnel records for a minimum period of four years, not three.
The Fair Labor Standards Act is enforced by investigators from the Wage and Hour Division of the U.S. Department of Labor. If these investigators determine that a production company is willfully not in compliance with the law, they may choose to prosecute any violations in a criminal court.
Employers found in willful violation of FLSA may face fines of up to $10,000. Multiple convictions may even result in imprisonment.
However, a failure to keep inadequate records may also expose a production company to vulnerability in civil court, with former employees able to file lawsuits seeking damages for unpaid overtime, benefits, or other discrepancies.
In that sense, solid record-keeping could be viewed as a best practice, not just a requirement.
Knowing how to correct payroll errors in Quickbooks or other budgeting software is a useful skill, but it’s not one that you actually want to use. You can avoid payroll corrections in your record-keeping entirely by establishing a solid organizational structure for your production company from the outset.
Well-managed digital workflows can improve your record-keeping by reducing physical paperwork, creating a searchable document database, and restricting access to critical personnel only.
Wrapbook’s payroll software adds features like multi-factor authentication, strict access controls, online monitoring, and daily data backup to make your production company as safe and secure as possible.
With better software, you won’t have to figure out how to fix payroll errors, because you won’t be making them in the first place.
Wrapbook generates startwork and other forms based on your project’s specific compliance needs. It collects all timecards digitally, streamlines submissions of those timecards, and empowers you to send payments with a click. As you move to new projects, Wrapbook constructs a comprehensive records database that you can use to crew-up even faster next time.
Common payroll errors can be stressful, but they’re easily avoidable with knowledge, due diligence, and well-placed software solutions.
To learn more about payroll best practices, be sure to check out our post on Payroll Compliance 101.
If you’d like to speak to someone directly about fines, prevention, or how our software can help, reach out anytime.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.
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