Preventing payroll pitfalls: Common errors and how to avoid them
Payroll administration is one of those activities that business owners don’t typically look forward to, but they know it has to be taken care of. Even though most businesses require payroll management of some form, few people are experts in it, which leaves a lot of room for mistakes.
Those mistakes can cost you in terms of hurting employee morale, taking up a great deal of your time and energy, and possibly costing you money in penalties and fees.
Here are some common payroll processing errors you may encounter.
- Miscalculating pay
This is a huge area because there are a variety of ways of miscalculating pay. These include:
- Overpaying or underpaying staff
- Missing the first pay for a new employee
- Improperly compensating employees who are on a paid leave
- Deducting the wrong amount from employee pay
- Incorrect employee hours
When employees are paid hourly, you must track their hours every day, as well as their overtime hours and time worked on holidays to ensure you’ve paid them correctly. Additionally, you must factor in times when employees work outside their normal hours–such as for training sessions– and when they travel between work sites.
Any error in logging their hours will result in an over or underpayment, which will then require hours of your time to find, address, and resolve.
- Missed deadlines
Your employees rightfully expect to be paid on time and accurately. Additionally, you may be required to meet tax filing deadlines. Failure to do so can result in hefty penalties you’ll have to pay, even if the error was an innocent one.
- Missing records
Having messy records isn’t just a headache when you have to pay your employees, it could cause a legal nightmare for you. Regulators typically require you to keep your payroll records–including hours worked, payment rates, and payroll dates–at least a few years. If your records aren’t kept properly you could face legal action, not to mention upset employees if it affects their pay.
- Incorrectly managing bonuses
Bonuses can be great for motivating employees, but they create complexity for your payroll. If you offer employees bonuses, you have to handle them properly, including determining the tax rate and whether bonuses should be included in calculating the overtime rate.
- Confusion about regulations
There are many regulations around payroll, including payment minimums, deadlines, benefits, deductions, vacation pay, taxes, and record-keeping. These rules are complex and often changing, so they can lead to confusion. Unfortunately, the government doesn’t accept “I didn’t understand” as an excuse.
Addressing payroll management errors
Some payroll errors can be dealt with by using software to better manage your process. Software gives you a way of storing your records safely and securely. Additionally, it will take care of calculations for you and can be integrated with other systems to prevent errors.
There may still be some issues, however, because software still requires a human to input some required information–and to manage the system as a whole. Additionally, if information used to set up the system is incorrect, then your payroll can get messy, quickly.
Outsourced payroll administration eases your burden. A payroll administration firm stays up-to-date on the latest rules and regulations, and ensures you stay compliant with the laws. They’ll also keep you on schedule, so your employees are paid accurately and on time, every time. If you have any errors in your current system, they’ll find them and address them, saving you the hassle of taking care of it yourself.
If you’re interested in learning more about how our affordable payroll solutions help business owners like you, contact us today for more information.