Payroll problems rarely begin with one dramatic error. They usually begin with small process failures: an employee paid outside payroll, a missed tax deposit, an outdated withholding setup, an improperly classified contractor, an unreconciled payroll liability, or a California wage rule that was never built into the payroll process. This guide explains the payroll mistakes small businesses should watch for and how stronger procedures can prevent small errors from becoming tax notices, wage disputes, amended returns, and year-end cleanup projects.
Calling someone an independent contractor, paying by invoice, issuing Form 1099, or allowing flexible hours does not by itself determine worker status. The IRS examines behavioral control, financial control, and the relationship between the parties, while California often applies a separate and potentially stricter ABC test. This guide explains how the major classification systems work, what businesses should document, and why worker status should be analyzed before payroll or contractor reporting begins.
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