Top 5 Payroll Myths Debunked

Payroll often lives in the “set it and forget it” category for small business owners. You’ve got a system in place, checks are going out, and nobody’s complained—so it must be working, right?

Not always.

At Cadence HCM, we work with business owners every day who think payroll is handled—until a surprise tax notice, compliance issue, or unhappy employee shows otherwise.

Let’s bust the 5 most common payroll myths that put small businesses at risk and show you what actually matters when it comes to getting payroll right.

Myth #1: "Payroll software takes care of everything for me."

Why It’s a Myth:

Many business owners think once payroll software is set up, it’ll automatically handle everything—from taxes to compliance.

The Reality:

Payroll software is a tool, not a solution. It doesn’t know if you entered the wrong pay rate, missed a garnishment, or forgot to classify someone as an employee vs. contractor. And unless you’re keeping up with tax law changes, the software might not either.

The Risk:

• Misfiled taxes
  
  
• Incorrect paychecks
  
  
• Compliance gaps that trigger audits or penalties
  
  

What To Do:
 Pair your software with expert oversight—or choose a partner like CadenceHCM who reviews and validates every payroll run.

Myth #2: "If I pay employees on time, I won’t get in trouble."

Why It’s a Myth:

Paying people on time is critical—but it’s not the only requirement.

The Reality:

You also need to withhold and deposit taxes correctly, file federal and state payroll forms, manage employee classification, and maintain wage/hour compliance.

The Risk:
 Even if employees are happy, the IRS and Department of Labor won’t be if your filings are off or your employee types (exempt vs. non-exempt) are misclassified.

What To Do:
 Use a checklist or hire a provider that makes sure you’re compliant behind the scenes—not just issuing checks.

Myth #3: "Contractors don’t need to be tracked like employees."

Why It’s a Myth:

Many business owners assume that if they issue a 1099, they don’t need to worry about how often contractors work or what they do.

The Reality:

If the IRS or a state agency determines your contractor is functionally an employee, you could be responsible for back wages, taxes, and penalties.

The Risk:

• Misclassification audits
  
  
• Back taxes and penalties
  
  
• Required benefits or unpaid overtime
  
  

What To Do:
 Review how much control and direction you have over contractors. If it walks like an employee and works like one—it probably is.

Myth #4: "One payroll mistake won’t hurt."

Why It’s a Myth:

It’s easy to think one error—one missed tax payment or underpayment—isn’t a big deal.

The Reality:

The IRS sees things differently. Penalties for late payroll tax deposits start at 2% and increase to 15%, even for small errors. And employees remember paycheck issues longer than you'd like.

The Risk:

• IRS fines and late fees
  
  
• Costly amendments and rework
  
  
• Damaged employee trust
  
  

What To Do:
 Build in a final payroll review before every filing. At CadenceHCM, we double-check every run to avoid these headaches for you.

Myth #5: "I’m too small to get audited."

Why It’s a Myth:

Many business owners think compliance issues only affect big corporations.

The Reality:

Small businesses are often more likely to be targeted by audits—because they’re assumed to lack robust processes or professional oversight.

The Risk:

• Wage/hour audits
  
  
• Misclassification penalties
  
  
• Back tax payments
  
  

What To Do:
 Have clear payroll records, audit trails, and professional guidance. Being small isn’t a free pass—it’s a reason to be buttoned up.

The Bottom Line: Myths Don’t Protect You—Good Payroll Practices Do

Payroll may not be flashy, but it’s one of the most important functions in your business. If you’re operating under outdated beliefs or assumptions, you might be one mistake away from fines, backpay, or employee turnover.

At Cadence HCM, we’re here to help small businesses move from “I think it’s fine” to “I know it’s right.”

We give you:

• Clean, compliant payroll processing
  
  
• A real team who checks your work before it becomes a problem
  
  
• Support when the rules change—or when you just want peace of mind