Running payroll may look simple on the surface—cut checks, pay taxes, move on. But for Spokane business owners, payroll is a minefield of Washington-specific rules and compliance requirements. From one of the nation’s highest minimum wages to mandatory paid sick leave with four state-specific payroll taxes across different subdivisions of state agencies, it’s easy to make costly mistakes.
At Shepherd Financial Group, we’ve helped Spokane employers untangle payroll errors that led to penalties, frustrated employees, and even strained banking relationships. What we’ve learned is clear: payroll isn’t just a task to “run.” It’s a system that must be managed within the broader framework of your accounting. A bookkeeper runs payroll; an accountant integrates payroll into financials for compliance and clarity.
Here are the five most common mistakes we see—and how you can avoid them.
Mistake #1: Misclassifying Employees and Contractors
Many owners blur the line between a W-2 employee and a 1099 contractor. In Washington, the Department of Labor & Industries is strict: if you control when, where, and how someone works, they’re probably an employee. Misclassification can trigger back taxes, penalties, and even personal liability for business owners.
How to avoid it: Clearly define roles, use written contracts, and when in doubt, treat workers as employees. More importantly, make sure classifications tie back into your accounting system correctly. If payroll is siloed from your financials, misclassifications may go undetected until an audit.
Mistake #2: Missing Washington’s Minimum Wage & Overtime Rules
As of 2025, Washington’s minimum wage is among the highest in the U.S., and the state enforces overtime aggressively. Spokane businesses that fail to track hours accurately or rely on outdated wage tables risk serious compliance issues.
How to avoid it: Update your payroll system annually, track employee hours digitally, and verify compliance with state thresholds. But don’t stop there—map wages in your general ledger correctly so labor costs flow into your cost of goods sold, overhead, and benefits reporting. That’s where accounting management goes beyond data entry.
Mistake #3: Ignoring Paid Sick Leave Accruals
Washington requires nearly all employees to accrue paid sick leave. Many Spokane employers either don’t track it or assume it applies only to full-time staff. Failing to provide accurate balances can result in legal exposure, frustrated staff, and strained workplace culture.
How to avoid it: Set up automatic accruals in your payroll system and communicate balances clearly on pay stubs. Then reconcile those accruals monthly so they appear correctly on your balance sheet as liabilities. Without that integration, you may understate what you owe employees—and overstate your company’s equity.
Mistake #4: Mishandling Payroll Taxes
Late or incorrect filings with the Internal Revenue Services (IRS), Washington Employment Security Department (ESD), or Washington Department of Labor and Industries (L&I) can quickly lead to penalties. We’ve seen Spokane companies fall behind even while they thought “the software was handling it.” The truth is: payroll processors only file what you set up. If the accounting integration is wrong, the filings are wrong.
How to avoid it: Reconcile payroll tax liabilities monthly. Confirm deposits post correctly, filings are acknowledged, and payroll expense accounts tie to the general ledger. Accounting management ensures payroll tax compliance isn’t just assumed—it’s verified.
Mistake #5: Overlooking Year-End Reporting
W-2s, 1099s, and quarterly reports require precision. Errors discovered during year-end often force owners into expensive “catch-up” cleanup projects, creating stress at the exact time when tax season is already busy.
How to avoid it: Keep payroll reconciled monthly and run test reports in Q4 to identify discrepancies before deadlines. When payroll is integrated with your accounting system, you’ll have confidence that year-end forms align with both payroll records and financial statements.
Why Payroll Mistakes Are So Costly
Payroll isn’t just about compliance—it’s about trust.
- Employees expect to be paid accurately and on time. A single missed or miscalculated paycheck erodes morale.
- Banks and lenders expect reconciled, accurate records. Sloppy payroll mapping creates doubts about your financial discipline.
- Owners rely on accurate financials to make decisions. If payroll is misreported, you’re steering the ship without a compass.
In short, payroll mistakes undermine confidence—from your staff to your stakeholders.
DIY vs. Professional Payroll Management
Spokane owners with fewer than five employees may be able to manage payroll on their own with simple software. But once your team grows—or you’re subject to increasing complexity like audits, retirement reporting, or benefit accruals—the risk far outweighs the cost of outsourcing.
Here’s the distinction we emphasize at Shepherd Financial Group:
- A bookkeeper runs payroll. They can process checks, remit taxes, and generate pay stubs.
- An accountant integrates payroll into financials. They ensure payroll flows into your profit & loss, balance sheet, and compliance reports accurately, creating financial clarity and protecting you from audit risk.
That’s the difference between clerical processing and accounting management.
Integration Matters: Payroll as Part of the Financial System
Payroll is not a bolt-on service. It’s one of the largest expenses in most businesses—and one of the most scrutinized by regulators and lenders. When payroll is fully integrated into your accounting system:
- Accuracy improves. Liabilities post correctly, and reports reflect the true cost of labor.
- Compliance strengthens. Sick leave accruals, workers’ comp, and cross-border rules (Washington vs. Idaho) are reconciled, not guessed at.
- Clarity grows. Owners can see exactly how labor impacts both revenue and overhead.
- Confidence builds. Banks, buyers, and employees trust the numbers.
This is why our Spokane clients rely on us not just to “run payroll,” but to weave it into the financial fabric of their business.
A Stewardship Perspective
Payroll isn’t just numbers—it’s stewardship. God entrusts business owners with resources and people, and Scripture reminds us: “Render therefore to all their dues: tribute to whom tribute is due; custom to whom custom; fear to whom fear; honour to whom honour.” (Romans 13:7, KJV).
Faithful stewardship means more than compliance. It means paying employees with integrity, honoring legal obligations, and managing payroll within the larger accounting system so that nothing is hidden or misrepresented.
At Shepherd Financial Group, our stewardship mindset shapes everything we do. We don’t just process transactions—we preserve the integrity of your business, protect your people, and position you to prosper for the future.
Closing Thought
Payroll may look like a simple checklist, but in Washington—and especially in Spokane—it is anything but simple. Misclassifications, miscalculations, and missed integrations create cascading problems that damage credibility, compliance, and cash flow.
The solution isn’t just hiring a payroll processor. It’s embracing accounting management that integrates payroll into your financials with discipline and clarity.
Because in the end, a bookkeeper runs payroll. An accountant integrates it for compliance and clarity. And your business deserves nothing less.