If there’s one area where small business owners get into trouble fast, it’s payroll and worker classification. Most don’t make mistakes intentionally — they simply don’t know the rules, or they assume software will do the thinking for them.
But as one of our team members shared in the interview, “Payroll is one of those things where if you mess it up, it causes a lot of problems.”
And the IRS agrees.
Whether you’re running a business in Kaysville, Layton, or Roy, Utah, classification errors can cost thousands in penalties, interest, and back taxes — especially if you mix up employees and contractors, run payroll incorrectly, or overlook state-specific requirements.
At FJ & Associates, we help business owners navigate payroll confidently so they can get back to doing what they do best — without IRS worries hanging over their head.
Let’s break down the biggest mistakes we see (straight from the interview), and how to avoid them before they become expensive.
The Biggest Payroll Question: Employee or Contractor?
If you’ve ever wondered, “Should I 1099 them or put them on payroll?”, you’re not alone.
This is one of the most common — and risky — decisions business owners face.
Misclassifying someone as a contractor when they should be an employee is one of the fastest ways to trigger IRS scrutiny.
How the IRS Decides
The IRS evaluates classification based on three factors:
- Behavioral control — Do you direct how work is done?
- Financial control — Do you control payment terms, expenses, tools?
- Relationship — Is the role permanent? Do you provide benefits?
Many Utah businesses assume contractors = cheaper. But misclassification penalties can reach tens of thousands of dollars, especially if taxes weren’t withheld properly.
If you’re unsure, default to asking a CPA.
It’s cheaper to do it right from the start than to fix it later.
Why DIY Payroll Leads to Expensive Headaches
The interview highlighted something we see weekly at FJ:
“If people are doing payroll on their own, most of the time they don’t do it right.”
It’s not because owners are careless — it’s because payroll is detailed, rule-based, and easy to get wrong.
Common DIY Errors
- Missing tax deposit deadlines
- Overpaying taxes (yes, this happens more than you think)
- Not updating employee banking information
- Forgetting state registration before running payroll
- Filing late or incomplete quarterly reports
- Incorrect wage calculations
- Not keeping up with new Utah and federal payroll laws
- Misunderstanding what “reasonable salary” means for S Corps
Even one mistake can trigger notices. Several mistakes can turn into penalties.
Overpaying Taxes: Yes, It Happens — All the Time
One story from the interview was especially painful:
A client paid more than they owed in payroll taxes. Fixing it took an enormous amount of time — not because the IRS wouldn’t refund them, but because the process is slow and complex.
In many cases, it takes:
- 8–12 weeks just to acknowledge a correction
- Multiple mailed forms
- Follow-up calls
- CPA intervention
Overpayment sounds harmless, but the time and paperwork it creates is a real cost — and all of it can be avoided with the right setup.
The Risk of Assuming Software Will Handle Everything
Software is great — until it isn’t.
We’ve seen Utah business owners trust that payroll software would “take care of everything.”
But software only works if it’s set up correctly.
If an owner:
- Enters the wrong FEIN
- Selects the wrong tax schedule
- Doesn’t register with Utah Workforce Services
- Misses state onboarding steps
- Misenters a W-4
- Connects the wrong bank account
…then payroll software simply automates the wrong information.
This is why FJ pairs technology with real accountants. Software helps with automation. CPAs ensure correctness.
Setting Up Payroll the Right Way (What Most Owners Don’t Know)
The interview makes it clear that most owners don’t realize the number of steps involved in setting up payroll correctly.
Here’s a simplified version of what we set up for clients:
Your business must be registered with:
- IRS (federal)
- Utah State Tax Commission
- Utah Department of Workforce Services
- Any applicable multi-state agencies
And if you hire out of state?
Each additional state has its own registrations and rules.
Then you need to set up:
- EFTPS (Electronic Federal Tax Payment System)
- State payment portals
- Unemployment tax accounts
- Workers’ compensation
- Payroll bank accounts
- Employee onboarding workflows
It’s no wonder owners get overwhelmed.
The “Notice Problem”: When Payroll Isn’t Set Up Right
Once payroll mistakes happen, the IRS and state often send notices.
Not one notice — sometimes several, in waves.
Fixing these requires:
- Reviewing the notice language
- Identifying the triggering mistake
- Correcting the payroll system
- Communicating with the IRS or state tax agency
- Submitting amended reports
- Confirming penalties
- Requesting waivers if appropriate
Having a CPA handle this can save weeks of time — and prevent even bigger issues.
How FJ & Associates Prevents Payroll Headaches
Our process blends automation with expert oversight.
For each client, we:
- Set up the entire payroll system
- Register all accounts (federal + Utah + multi-state)
- Verify employee information
- Ensure taxes will be deposited correctly
- Run test payroll
- Monitor for notices
- Reconcile liability accounts monthly
- Provide access to reports, W-2s, and filings
This combination of tech + CPA support is what small businesses need for true peace of mind.
Real Story: Utah Business Owner Avoids a $7,200 Penalty
One business owner in Roy hired a contractor as a “trial employee” but controlled their schedule, gave them equipment, and paid them hourly.
The IRS later reviewed the records and determined the worker was actually an employee — not a contractor.
But because the owner worked with FJ early, we:
- Reclassified the worker correctly
- Filed amended returns
- Submitted penalty abatement
- Negotiated a reduced balance
Final penalty: $0.00
Because they didn’t wait until the IRS had escalated the case.
Why Multi-State Businesses Should Never DIY Payroll
Many Utah businesses now hire remote employees — someone in Idaho, someone in Texas, someone in Arizona.
Every state has unique rules:
- Unemployment insurance
- Wage-withholding rates
- Pay frequency laws
- New-hire reporting
- Local taxes
If you misapply rules across states, you can easily trigger complications with:
- State audits
- Payroll tax miscalculations
- Incorrect W-2s
- Employee complaints
FJ ensures every state is properly set up — long before payroll ever runs.
- Misclassifying workers can trigger major IRS penalties.
- DIY payroll leads to errors, notices, and wasted time.
- Overpaying taxes is common — but avoidable with the right setup.
- Payroll software isn’t a substitute for CPA oversight.
- FJ & Associates helps Kaysville, Layton, and Roy businesses stay compliant and confident.
FAQs:
1. Why is worker classification such a big deal?
Because misclassifying an employee as a contractor can trigger IRS audits, back taxes, penalties, and interest.
The IRS looks at:
- Behavioral control (who decides how the work is done)
- Financial control (who controls expenses, tools, and payment terms)
- Relationship (permanency, benefits, expectations)
If you’re unsure whether someone is an employee or contractor, consult a CPA — fixing misclassification is far more expensive than preventing it.
2. What are the most common payroll mistakes small businesses make?
From our work with Utah businesses, the most frequent errors include:
- Missing payroll tax deadlines
- Overpaying payroll taxes
- Forgetting to register with Utah state agencies
- Filing late or incomplete quarterly reports
- Incorrect wage calculations or banking info
- Misunderstanding S Corp “reasonable compensation” rules
- Failing to keep up with federal and state payroll changes
Even one mistake can lead to notices. Several mistakes can lead to penalties.
3. Can I really get in trouble for using a contractor instead of an employee?
Yes — and fast.
If the worker meets the IRS definition of an employee, but you issue a 1099 instead of running payroll, the IRS can assess:
- Back payroll taxes
- Penalties
- Interest
- Reclassification fees
Misclassification is one of the top triggers of small business audits.
4. Is payroll software enough to stay compliant?
No.
Payroll software only works if it’s set up correctly. If you enter the wrong ID number, select the wrong tax schedule, skip Utah registrations, or misinterpret onboarding steps, the software will simply automate the incorrect information.
Software handles automation.
CPAs handle accuracy.
5. What happens if I overpay payroll taxes?
Surprisingly, this is very common — and costly in time.
Fixing an overpayment often requires:
- Amended filings
- Multiple mailed forms
- IRS phone calls
- Weeks (sometimes months) of wait time
Overpayment seems harmless, but the process of correcting it is slow, frustrating, and disruptive — and completely avoidable with the right setup.
6. What payroll setup steps do most business owners overlook?
Most Utah business owners don’t realize how many accounts must be opened before running payroll.
You need:
- IRS registration
- Utah State Tax Commission account
- Utah Department of Workforce Services account
- EFTPS access
- State payment portals
- Unemployment insurance accounts
- Workers’ compensation setup
- Proper employee onboarding workflows
Hiring out of state? Add a new set of registrations for each state.
7. What happens when payroll isn’t set up correctly?
You’ll start receiving notices — sometimes several at once — from the IRS and the state. These notices require:
- Reviewing and interpreting the issue
- Correcting system errors
- Filing amended reports
- Confirming or disputing penalties
- Requesting abatements where appropriate
A CPA can save you weeks of time and prevent further escalation.
8. How does FJ & Associates help prevent payroll mistakes?
Our team handles everything, including:
- Full payroll system setup
- All federal + Utah + multi-state registrations
- Employee verification
- Tax deposit automation
- Running test payroll
- Monthly reconciliations
- Monitoring notices
- Providing W-2s, filings, and reports
You enter hours. We handle compliance.
9. Why is multi-state payroll especially risky for DIY setups?
Each state has unique:
- Withholding rules
- Unemployment rates
- New-hire reporting
- Pay frequency laws
- Local taxes
- Filing deadlines
Applying Utah rules to an employee in Texas or California is a fast way to trigger penalties.
FJ ensures every state is set up correctly before payroll ever runs.
10. Can you give an example of avoiding penalties through proper classification?
Yes.
A Roy business classified a “trial worker” as a contractor, even though they controlled their schedule and equipment.
The IRS flagged them.
Because they worked with FJ early, we:
- Reclassified the worker
- Filed amended payroll returns
- Submitted penalty abatement
- Worked with the IRS on the owner’s behalf
Final penalty owed: $0.00.
11. When should a business outsource payroll?
Immediately — especially if:
- You’re unsure how to classify workers
- You’ve received payroll notices
- You’re hiring your first employee
- You’re expanding to multiple states
- You’re an S Corp owner paying yourself
- You’re tired of fixing payroll errors
Outsourcing saves time, prevents penalties, and provides year-round peace of mind.
12. How can FJ & Associates help my business?
We provide payroll setup, ongoing compliance, worker classification guidance, multi-state support, and CPA-driven oversight for businesses across Kaysville, Layton, Roy, and northern Utah.
Our blend of tech + expertise keeps your business safe, compliant, and stress-free.
Ready to eliminate payroll mistakes for good? Contact FJ & Associates today.
Payroll shouldn’t be stressful — and it shouldn’t put your business at risk.
Partner with FJ & Associates, your trusted CPA serving Kaysville, Layton, and Roy, Utah, to set up payroll the right way and avoid costly mistakes.
Let us take payroll off your plate so you can get back to doing what you do best.
Missy Dennis is a Partner at FJ & Associates, PLLC, based in Kaysville, Utah. With over twenty years of public accounting experience, Missy specializes in tax preparation, taxadvisory, bookkeeping, estate and trust taxation, consulting, and auditservices.
She holds a Master of Accountingdegree from the University of Utah and is a licensed Certified Public Accountant. Her industry expertise spans low-incomehousing taxcredits, non-profit accounting, and a wide variety of small- to mid-sized businesses.
Missy is dedicated to helping clients navigate complex tax and financial matters with clarity and confidence. She is committed to providing accurate, trustworthy, and actionable guidance so clients can focus on what they do best.
