Avoid These Top 5 Payroll Mistakes in Louisiana. Legal Tips for Small Business Owners
You’ve built a business worth protecting. But are your payroll systems protecting it too?
Payroll may seem like a routine back-office task, but one small error, like misclassifying an employee or misfiling a tax form, can expose your business to penalties, audits, or even legal action. In Louisiana, where payroll laws combine federal requirements with unique state-specific regulations, these mistakes are easier to make than most business owners realize.
So, how do you know if you’re getting it right?
If you manage or own a small business in Louisiana, now is the time to audit your payroll practices before issues pile up. In this guide, Niswanger Law walks you through five common payroll mistakes Louisiana small businesses make, and more importantly, how to avoid them with smarter planning and legal insight.
1. Misclassifying Employees and Contractors
Worker classification is one of the most misunderstood aspects of payroll. Many Louisiana business owners mistakenly categorize workers as independent contractors to avoid payroll taxes, benefits, or onboarding steps.
Unfortunately, misclassification is a red flag for both the IRS and the Louisiana Department of Revenue. If a worker is legally an employee, they must be paid accordingly, with proper withholdings, unemployment insurance, and wage protections.
How to avoid it:
- Review control, supervision, and permanence of the working relationship.
- Use the IRS 20-Factor Test or consult legal guidance for gray areas.
- Reassess classifications annually or after major role changes.
A misclassified contractor can result in back taxes, penalties, and wage claims. Working with a payroll compliance attorney in Louisiana can help clarify your classifications and reduce risk.
Learn more about employee classification through our Business Planning services
2. Missing Payroll Tax Deadlines or Filing Inaccurately
Payroll taxes are time-sensitive. Every payday, you’re required to withhold and remit various taxes, including federal income tax, Social Security, Medicare, and Louisiana state income tax. Missing just one deadline can trigger penalties or IRS audits.
Some small business payroll errors we often see:
- Incorrect withholdings based on outdated W-4s
- Failure to remit state unemployment contributions
- Late filings of quarterly reports (e.g., Form 941)
How to avoid it:
- Use automated payroll software with compliance tools.
- Set calendar reminders for all federal and state deadlines.
- Conduct a mid-year payroll review to catch issues early.
If payroll tax compliance is becoming a burden, schedule your service now to learn how legal professionals can help streamline the process.
3. Inadequate Payroll Recordkeeping
The law requires employers to maintain accurate payroll records. That includes hours worked, wages paid, tax withholdings, benefits, and employee information. In a dispute or audit, poor documentation can hurt your defense, even if you were operating in good faith.
Federal and Louisiana state laws require different retention periods, and manual or incomplete systems often leave gaps.
How to avoid it:
- Use secure, digital payroll systems that track time and wage history.
- Maintain payroll records for at least three years (some records may require longer).
- Create internal procedures for updating employee files and benefit deductions.
For a stronger recordkeeping strategy, consult a Louisiana payroll legal advisor who can help set up defensible systems that meet both state and federal standards.
4. Overlooking Louisiana-Specific Payroll Laws
Key Louisiana payroll rules include:
- Final paycheck deadlines: Employers must pay final wages within 15 days or by the next regular payday.
- Record retention: Louisiana requires one-year retention for payroll records.
- Tipped wage rules: Louisiana permits lower cash wages for tipped workers, but employers must still ensure total earnings meet minimum wage requirements.
How to avoid it:
- Supplement payroll tools with legal oversight.
- Conduct annual reviews of state-specific regulations.
- Don’t assume your software provider covers Louisiana labor law nuances.
Need help decoding the fine print? Book an appointment online to review your payroll practices with Louisiana-based legal professionals.
5. Not Keeping Up With Regulatory Changes
What worked last year may not be legal today. Tax codes, benefits regulations, and wage laws frequently evolve at both the federal and state levels. Ignoring those changes can lead to noncompliance, especially during business growth or restructuring.
Examples include:
- New IRS reporting rules
- Shifts in minimum wage or sick leave requirements
- Adjustments in tax credit eligibility for small businesses
How to avoid it:
- Partner with legal advisors who monitor federal and Louisiana updates.
- Schedule periodic compliance audits, especially before tax season.
- Educate HR or payroll staff on annual legislative updates.
At Niswanger Law, we help small businesses stay current with local and federal changes, offering proactive planning, not just reactive fixes.
The Ripple Effects of Payroll Mistakes
It’s easy to view payroll errors as fixable clerical issues, but they can have a deeper impact on your business. Inconsistent paychecks, incorrect tax withholdings, or overtime errors can lower employee morale, trigger complaints, or result in lost trust in your team.
On the legal side, repeated violations can invite attention from state or federal agencies. A single audit can disrupt operations for weeks and reveal further risks.
Then there’s the reputational risk. In a small community, legal disputes with employees or unpaid tax penalties don’t stay quiet for long.
The solution? Put safeguards in place before those issues arise.
When to Conduct a Payroll Audit, and What to Look For
A payroll audit is a structured review of your systems, payments, classifications, and compliance policies. It’s one of the most proactive steps a small business can take to prevent mistakes, detect fraud, and ensure full compliance with federal and Louisiana law.
Signs it’s time to schedule an internal audit:
- You’ve had recent staffing changes
- You’ve switched payroll systems
- You’ve expanded into new services or job roles
- You haven’t reviewed payroll processes in over a year
An audit can uncover:
- Misclassified workers
- Inconsistent time tracking
- Unreported fringe benefits or bonuses
- Gaps in recordkeeping or policy enforcement
Niswanger Law conducts legal-focused payroll audits designed to uncover hidden risks before they become legal headaches. It’s a key part of how we help businesses grow with confidence and compliance.
The Niswanger Law Approach: Personalized. Proactive. Proven.
We don’t just check boxes. We help build better businesses.
Located in West Monroe, LA, Niswanger Law provides tailored business and tax planning services for entrepreneurs, partnerships, and corporations across the state.
What makes our approach different:
- We listen first: Your business isn’t like anyone else’s. Your payroll plan shouldn’t be either.
- We coordinate with your CPA or bookkeeper: Our legal oversight complements—not replaces—your current systems.
- We stay proactive: From compliance audits to classification reviews, we help you prepare—not just react.
- We offer clarity: No legal jargon. No guesswork. Just clear, useful guidance.
For small businesses looking to grow without worry, we offer a smarter way to manage payroll risks. Learn more about Niswanger Law’s business planning services
Frequently Asked Questions
What are Louisiana’s rules around pay frequency for small businesses?
Louisiana law requires employers to pay wages at least twice a month or every two weeks. However, exceptions may apply for certain industries or positions. Ensuring your payroll schedule complies with state labor law is key to avoiding employee disputes and regulatory issues.
Do I need to register separately with Louisiana agencies for payroll taxes?
Yes. In addition to registering with the IRS, Louisiana employers must register with the Louisiana Department of Revenue and the Louisiana Workforce Commission for withholding and unemployment tax purposes. Missing this step can lead to delays and penalties.
Can owners or partners be included in the business payroll?
It depends on your business structure. For example, S corporation owners may pay themselves a “reasonable salary” through payroll, while sole proprietors and partners typically take draws. It’s important to align your compensation method with your tax classification.
Is there a difference between exempt and non-exempt employees for payroll?
Yes. Exempt employees are not entitled to overtime pay under the Fair Labor Standards Act (FLSA), while non-exempt employees are. Misclassifying these roles can lead to underpayment claims and wage violations. A legal review can ensure proper designation.
How often should I update my payroll policies or employee handbook?
It’s best to review payroll policies at least annually or any time there are regulatory changes, staff expansion, or system updates. A regular review by a payroll compliance attorney in Louisiana helps ensure your policies remain legally sound and enforceable.
Let’s Build a Better Payroll Plan Together
Payroll mistakes don’t have to be part of your story. If your business is growing or even just getting started, now is the time to put strong payroll processes in place.
Niswanger Law provides practical, legally backed guidance to help you avoid common pitfalls and move forward with clarity.
Ready for fewer surprises and stronger systems? Book your consultation online or give us a call at (318) 953-0071.
