What are the common mistakes happen during payroll process?
A smooth payroll process in your organization is like oxygen—when it’s there, you hardly notice it; when it’s missing, you can’t think about anything else. That makes payroll one of the least appreciated yet most important functions within a business. Payroll, when done well, can keep employees satisfied and help your organization stay safe from legal consequences. On the other hand, when payroll mistakes crop up, their impact can ripple across an entire company.
Fortunately, all of the most common payroll errors are easily avoidable with education, proper planning, and the right tools. To learn about these payroll mistakes and how to avoid or fix them, read on.
Most Common Payroll Mistakes
With a process as complex as payroll, there are numerous places where organizations can make mistakes. Here are some of the most common payroll errors to watch for in your company.
Misclassifying Employees
The Fair Labor Standards Act (FLSA) provides benefits and protections, like overtime pay and minimum wage, for most employees under the law. Independent contractors, however, are not afforded these same protections. Likewise, exempt and nonexempt employees also have different legal rights. Some organizations slip up and misclassify their employees as independent contractors or as exempt.
Not only can misclassification deny an employee some important benefits and wages, it may also mean the government misses out on valuable tax dollars. If left unchecked, the resulting underpayment or overpayment can turn into a costly payroll error.
Miscalculating Pay
With overtime, commissions, deductions, PTO, and more, payroll admins have a lot to keep track of when it comes to calculating pay. For overtime wages, the general rule is 1.5 times an employee’s regular wage for any time worked beyond 40 hours in a workweek. However, your state may have different policies regarding overtime; your organization should always comply with the law that is more generous for the employee.
Poor time tracking capabilities can also contribute to miscalculated pay. If your company doesn’t have a reliable way to track employee hours or paid time off, then your chances of making a payroll overpayment or underpayment mistake skyrocket. Mistakes like these will result in a payroll correction.
What is a Payroll Correction?
A payroll correction is required when adjustments need to be made to amounts paid. Poor payroll organization, like forgetting to account for vacation days, can cause the need for money to be added or subtracted from the original amount.
How Long Does a Company Have to Fix a Payroll Error?
While legal time frames differ depending on the state, the short answer is that errors should be paid promptly. Fixing shortages in payroll as soon as possible should help you avoid any penalties. Labor laws require full payment for work completed and most companies will either add the missing pay to the next pay period or cut a check between pay periods.
Poor record keeping and data entry.
Mismatching names and Social Security numbers is so common that the Social Security Administration has even established a special verification phone number. Numerous data entry mistakes, including poor records of employee hours, cost companies millions of dollars annually and can result in government penalties.
Not properly handling garnishments, levies, or child support. Employees may owe money by way of a court order to other parties. This means whoever is handling payroll will be responsible for sending the payment to the appropriate recipient.
Ignoring the Importance of Mobile Security
Like computer security, mobile security is also vital to protecting your data. Have a clear policy set for mobile access that lets employees know what information and which applications are okay to share and access on their mobile devices.
Putting Off Installing Anti-Virus Software
You can also protect important online data by installing anti-virus software. Common anti-virus software, such as Norton or McAfee, should be installed on all company computers (Quickbooks). Additionally, procedures should be put in place to make sure this software is always up to date.
Bad bookkeeping
You have to integrate payroll into your books. After all, it has a direct impact on your cash flow. Knowing how much money you have available at any given time tells you how much you can invest in your business and your employees. Don’t want to deal with it? Get a good bookkeeper or hire an accountant.
We hope this helps you dodge any major payroll problems that might come your way. For state-specific guidance, visit your state labor office’s website.
Falling behind on tax payments and filings
Again, taxes. Depending on the amount of payroll taxes you collect, your tax deposits may be due monthly (most common), biweekly, or even the next day. If your state or city collects income taxes too, check with them to confirm due dates. Late payments may come with penalties and accrue interest, so follow submission guidelines and get your payments in on time!
Also, make sure you plan ahead and register your business well before taxes are due. Get federal, state, and local payroll tax identification numbers, as applicable, so you can pay the government and submit filings on time.
Administrative Staff
Many businesses, especially smaller ones, still carry out their payroll process in-house and manually. Often, the payroll staff is overworked. A manual payroll system typically requires a great deal of paperwork and a manual process also creates an administrative burden for your HR staff. Errors in data entry, for example, can create payment issues and the misapplication of rules. Being understaffed leads to mistakes.
Payroll Documents
A common problem is one of simply keeping all of your important payroll and employee records and information organized in an effective and accurate manner. Sometimes it is simply a matter of work flow: not keeping files and documents in a central location or creating uniform filing processes. A typical issue is storing and organizing paper checks, for example.