Taking the payroll of a company, especially the largest ones, is a delicate process that requires experience and precision. This is because common payroll mistakes are caused by the lack of both, or other related ones. However, companies can avoid them by using both internal and external resources.
In this article, you have a detailed list of all the errors that commonly occur in payroll processes. In addition, the solutions that you can apply in your company to prevent them and avoid the negative effects. Let us see:
- Payroll mistakes and their solutions
- What are common payroll mistakes?
- How can you prevent these mistakes?
- What implications do payroll errors have for your business?
- How can we help you prevent common payroll mistakes?
1. Payroll mistakes and their solutions
You can make de payroll mistake correction outside of your regular cycle to rectify an error that occurred on a previous payroll. That is because, when it comes to correcting common payroll mistakes, time is of the essence. However, it is possible to correct such errors in a regular payroll run.
In this particular case, it is important to be sure to comply with all applicable state laws. A common issue is when an employee gets paid less than fair wages, they may have limited time to correct it. Therefore, you should check the respective regulations to ensure that you comply with them.
2. What are common payroll mistakes?
The correct payment of your employees is one of the basic needs that you must fulfill in order not to have problems. However, this process and others related to payroll can be hindered due to external or internal factors. There are several common payroll mistakes that your business needs to watch out for:
2.1 Misclassification of employees
This point is important because your company may be making an incorrect payment, be it excessive or insufficient. For example, a common classification error is wrongly determining whether or not an employee should be exempt from overtime. Hence, this misclassification can lead your company to incur fines from the regulatory body.
Another common payroll mistake is taking an employee as an independent contractor. Therefore, these failures may lead to searches of historical payroll records for retroactive payments or other payment adjustments. This creates both trust issues with your employees and costs your organization money.
2.2 Wrong calculation of wages
This is one of the common payroll mistakes that can frustrate employees, especially with late payments. In addition, they are also time-wasting since you will have to spend a large number of hours correcting them. This can even take days because you have to thoroughly investigate and correct bugs outside of the regular payroll cycle.
Also, depending on the magnitude of the inconsistency, this could take anywhere from 2 to 10 days to resolve. It is because of these deadlines that employees may feel frustrated, as they may have to pay debts or other obligations. In addition, this type of error can happen both with employees with a fixed salary or who receive hourly payments.
Common payroll mistakes related to improper payment of wages include overpayments or underpayments to employees. Likewise, miscalculated retroactive payments, incorrect deduction of benefits, lost checks, and improper payments to disabled workers or other permits.
2.3 Lack of tracking of working hours (normal and extra)
If a company wants to pay the exact amount of hours of its employees, it must constantly track them. In this way, you will not lose money, nor will you have complaints from employees, which can lead to legal problems. Also, this is a common payroll mistake that can take a long time to correct.
Another drawback is that your employees may feel uneasy, whether they are underpaid or overpaid, having to repay money to the company. For the rest, there are situations in which errors occur in overtime payments. Some of these situations are:
- Employees who work during their breaks.
- Workers travel between workplaces.
- Activities that require the presence of the worker outside of their normal hours (training, team building, etc.).
2.4 Lack of information on taxable compensation
Payments to employees are not limited to normal salary, overtime, commissions, or bonuses. Your company is required to report both common forms of payment and taxable compensation. Among the latter are :
- Bonuses for your workers include gift cards, travel awards, and the like.
- Stock options and other equal awards.
- Personal use of a company vehicle.
These may not be considered compensation by your company but may be considered as part of your payroll. Therefore, not providing the respective information may imply tax penalties for your company and its affected employees.
2.5 Mishandling of records
Another common payroll mistake is having disorganized and inefficient record-keeping, which leads to processing difficulties. This issue typically occurs when a business still relies on paper processes and manual data entry. It can also happen from storing a large number of spreadsheets.
In the case of these errors, not only can they take time to resolve but it can even take you a long time to find them. In addition, this disorganization can cause you to lose the pay of an employee, involving the aspects mentioned in previous sections. Also, this situation can cause problems at the time of an audit or review of the process.
Therefore, it is not convenient for one person to handle all aspects of payroll manually. There is now a wide variety of software to keep your payroll system organized and automated. In this way, it will simplify the payroll process for any department that is in charge of its administration.
2.6 Not meeting payroll deadlines
This is one of the common payroll mistakes that hurts the employees of any company the most. This is because workers expect to be paid on time and correctly every cycle. Consequently, employees suffer the consequences of late payments when the close of a payroll cycle is missed.
Additionally, if you miss the cutoff for filing taxes, you may face penalties and possible regulatory penalties as well.
3. How can you prevent these mistakes?
Now that you know what the common payroll mistakes are, it is time to learn how to avoid them. You can avoid these mistakes with the use of resources and tools that help automate payroll processes. This way you can also ensure the alignment of your business with legal requirements.
You can then follow these recommendations to prevent errors and increase payroll efficiency:
3.1 Put clear payroll policies in place
In this case, you must record all your payroll activities, which also include:
- When should payroll exceptions be made?
- Procedures for performing the review.
- When to approve changes.
In the same way, these policies also refer to the management and retention of records. In this way, you will comply with the legal requirements that define the specific time of maintenance of payroll.
3.2 Automate your payroll processes
To prevent common payroll mistakes, automate and integrate payroll processes. In this way, you significantly reduce manual entries and excessive paperwork. Also, your company manages to establish a continuous and more efficient workflow.
Likewise, it will keep the payroll tasks on time, the systematization, and the elections of benefits of the employees. Thus, you will be able to manage the workforce and achieve consistency between payroll and human resources data. In addition, this will also allow you to obtain the following benefits:
- Actions taken by human resources departments can also lead to payroll changes. Therefore, you will be able to make salary adjustments and bonus awards, which aid in accurate employee and pay classifications.
- Another advantage is that it will reduce payment and reporting errors. This is due to the efficiency of the system for recording hours worked by employees, including overtime.
- This automation and process integration allows you to have a clearer view of payroll inconsistencies and changes. It will also consolidate reports to view and manage your workforce from one platform.
3.3 Review your processes and evaluate your payroll provider
To discover potential ongoing errors and areas where you can improve, you need to analyze your processes. Plus, you can switch payroll providers if you are dealing with ongoing errors or need a new approach. This supplier must be aligned with the goals that your company wants to achieve.
Therefore, if the current one does not work in parallel with your needs, you can work with the one that does. You should also prepare for a smooth transition.
3.4 Set time goals and a checklist
Both processes allow your company to comply with established legal deadlines and avoid fines for non-compliance. Therefore, establish a process for paydays, receipting, and compliance with payroll tax commitments. Also, establishing a payroll schedule allows you to plan the time spent on it more effectively.
3.5 Stay up to date on laws and regulations
Another way to prevent common payroll mistakes is to stay on top of changes in laws and regulations. These can affect the way you manage the payment of workers, as they are constantly changing. This also involves any plans or programs that can be implemented.
Thus, this helps you make changes to your payroll processes, instead of catching up with each law change.
4. What implications do payroll errors have for your business?
The importance of preventing all the aforementioned payroll errors lies in the negative effects that your company will avoid. Harmful consequences include:
4.1 Loss of trust
One of the negative effects of common payroll mistakes is that you will lose the trust of your employees. In this way, the worker also loses motivation and, consequently, the productivity of his business decreases. In addition, the employee may want to leave his company, thus increasing the turnover of workers.
4.2 Waste of time
Errors take valuable time away from the payroll team, which otherwise could be used for other processes. In addition, you may have to deal with many employee complaints, absorbing more time, lowering efficiency.
4.3 Damage to morale
Payroll errors involving payment to employees can be taken personally by employees. This is much more evident when the error is continuous, however simple it may be. Therefore, lowering employee morale, will affect productivity, and the team and even increase turnover.
4.4 Tax complications
The tax deduction is impacted by payroll errors. Therefore, you may need to contact the tax office to update the payment summary of the employees. Which will also take more time to rectify these inconsistencies.
4.5 Damages the prestige of the company
The constant errors of non-compliance with amounts and payment times make it look unprofessional for employees. In addition, your company will also be affected by the comments that your workers will make outside of your business. This drives aspiring employees past your company the moment you post job openings.
5. How can we help you prevent common payroll mistakes?
These errors commonly occur due to inexperience, lack of information, or other internal and external factors. However, people can prevent these failures through the implementation of some tools and the use of resources. For example, you can outsource the services of professionals who take care of this process.
At PEO Middle East we have the right professionals thus that these mistakes do not occur in your business. Additionally, you have at your disposal our professional employment organization services to advise you on it. Therefore, if you need this or other services to improve your business, you can contact us.
Need to know more about common payroll mistakes and how to prevent them? Our group of specialists will gladly assist you by calling the telephone number +971 43 316 688. In addition, you can send us an email to the email address [email protected] to get in touch with us.
If, on the other hand, you want to join the best team of business professionals in the Middle East, leave us your CV at thetalentpoint.com. You can also send it to the email address [email protected].