Payroll management Software is about ensuring that employees are paid correctly, on time, and in compliance with applicable laws. Without the right tools and resources, employee pay can become a maze of errors that can lead to financial and time losses for your company. These tips will help you avoid common mistakes in payroll.
Payroll processing is one of the most important and complex HR functions in any company. It will keep employees happy and help them to be productive. Employers should also be protected from legal problems.
All of the most common mistakes in payroll can be avoided with proper planning and the right tools. Learn how to fix or avoid these common payroll errors.
Correct pay is the most fundamental expectation employees have during the employee journey. Correct pay can be affected by many external and internal factors. W-2s, paychecks, and other payroll reports may not be delivered on time. These seven errors will make it impossible for your employees to receive a flawless payroll.
Employees being misclassified
Incorrect classification of employees can lead to incorrect pay. This could eventually lead to underpayment or overpayment of wages. An error in determining whether overtime should be paid to an employee is one of the most common mistakes made. All employees must be paid overtime for all hours worked beyond 40 hours per week under the Fair Labour Standards Act unless they are exempt. Non-exempt employees can be subject to FLSA-related penalties. This could also lead to overtime earnings being missed by an employee.
A common mistake in payroll is when an individual is classified more as an independent contractor than an employee. Misclassification errors often lead to the need to search historical payroll records to make retroactive payments and other adjustments to employee wages. The US Wage and Hour Division of the Department of Labour recouped a record $322 million in backpay for misclassified employees in 2019. Not only does misclassification cause trust problems with your employees but it can also lead to financial losses for your company.
Pay Calculation Mistakes
Payroll admins are faced with many challenges when it comes to calculating pay. The general rule for overtime wages is 1.5 times the employee’s regular salary for work beyond 40 hours per week. Your state might have different overtime policies. Your organization should follow the law that is most generous for your employee.
Miscalculated wages can also be caused by poor time tracking. Your chances of making an error in payroll payments or overpayments skyrocket if your company doesn’t have a reliable method to track employee hours and paid time off. These mistakes will require a correction to your payroll.
Poor holiday planning
Planning for holidays is crucial. It’s important to do this well in advance. Employees must be notified of any closures in advance. Federal law does not require you to pay overtime or provide paid holidays for employees who work on federal days. However, many companies opt to do so. It’s best to make holiday schedules and any changes to your payroll well in advance.
Employees who have been paid via direct deposit will not receive payment until the next working day if a regular payday falls on a bank holiday. You will need to schedule a payment at least one business day ahead of time in order to ensure that employees receive their wages on time.
Overtime and employee hours not being tracked
Incorrectly recording overtime hours can result in improper overtime payments. This could lead to corrections that may span multiple tax years. It takes time to correct these errors. Employees can become extremely upset if they are overpaid or underpaid, and may have to return money to their company.
Overtime is more than just paying overtime. It’s about more than simply paying employees 1.5 times the normal rate for working over 40 hours per week. If you fail to make a payment as required, overtime payment errors could occur.
- Employees who work during breaks
- travel between workplaces when they are on the move.
- sometimes required to take part in activities that go beyond their normal work hours. This could include team building, training, or company parties.
Not sending tax forms
Payroll professionals are often overwhelmed at the end of the year and the beginning of the new one. After processing taxes and payments for a year, payroll professionals must send all required tax forms to employees. While employees need W-2 forms, independent contractors earning $600 or more require 1099s. It’s not just inconvenient to employees, but it can also cause problems for your company if you don’t get the forms to the correct people in a timely fashion.
You should also ensure that you pay the correct tax rate. Tax rates can change, so make sure to keep your payroll updated. You can avoid paying taxes by making sure your tax rates are correct.
Non-exempt employees are not paid for training
You must pay employees who are not exempt for hours spent attending work-related training, meetings or other activities. Even if the training is done outside of normal work hours, this includes online training. To be excluded from the FLSA’s definition of work hours, an activity must not be part of a job-related activity and not be performed during normal working hours.
How Payroll Software Can Eliminate Payroll Related Errors
Payroll software reduces the risk of mistakes in payroll by automating complicated calculations, tax filings, and employee payments. The software will automatically apply the most recent federal, state, and local taxes. This eliminates the hassles and risk of tracking changes in tax or labor regulations. It can automate the maintenance of payroll records, as required by law.
Some common mistakes in payroll can be avoided with the use of modern technology, the best payroll software, and good planning. These are the smartest ways to avoid common payroll mistakes:
Planning for accurate and timely payroll is essential
There are many steps involved in salary processing. Employers may not be able to adhere to their timetables. This can cause employees to distrust the company and their opinion. Set a deadline for both taxes and paydays, and make sure you stick to it. Payroll is all about timing and accuracy.
Establish clear policies for payroll
A manual should be created that describes all payroll activities. It should include information about payroll exceptions and procedures for reviewing and authorizing changes. A policy should be developed for records retention and management. This will help you meet legal requirements such as the FLSA requirement that payroll records be kept for at least three years.
Make a checklist
The tried-and-true checklist is a must-have. Even if payroll admins use software, there is still a lot they need to keep track. A checklist allows them to go through each step, looking over each item and verifying that everything is correct.
A list of all new hires, any pay changes, and all deduction changes can be kept in one central location. It can also be organized by pay period. When you are working on the payroll for the period, you can go through each list and verify that all changes have been made.
Choose the best time tracking system
HR must keep track of shift timings, overtime, and deductions while calculating pay. Choosing the right time-tracking software is smart for smooth payroll processing. Poor time tracking capabilities could lead to incorrect pay calculations.
Automate and integrate your payroll processes
Integrated automates your payroll workflows. This helps you to avoid manual entry and paper-intensive processes, which can often lead to errors. An integrated system aligns payroll activities with time tracking, scheduling, and employee benefits election so that you can manage your workforce and maintain consistency between HR and payroll data.
Automating payroll tasks and integrating them into other HR activities and reporting can help you avoid common payroll mistakes and provide the following benefits:
- One system to record employee hours and calculate overtime. This will reduce reporting and payment errors.
- Consolidate reporting allows you to view and manage your workforce from one platform. You can also see discrepancies or payroll changes in real-time.
- Keep and review your payroll records
As HR, it is your responsibility to review and maintain all payroll records, including attendance reports, deduction reports, and attendance reports. This will help you keep your company safe in future audits. It also helps you process payroll accurately.
There are many potential pitfalls in managing payroll. It can be difficult for small businesses to keep track of changing regulations and ensure that they manage payroll correctly every time. Payroll software helps you to automate your compliance with changing regulations, and ensure that employees are paid accurately and on time.