12 Common Payroll Mistakes that Businesses Must Avoid

Maintaining a smooth relationship is critical for every business organization to safeguard reputation while compliant with payroll rules. Maintaining all information related to wage deductions, payroll check delivery, maintenance of employee & ex-employee payroll records, employment dates, overtime calculation, bonuses, reimbursements, pensions, paid/unpaid days, etc payroll can be a complicated process in which the smallest of the mistakes will make the businesses in jeopardy.

Thus attending to all possible measures that can streamline the payroll businesses is critical for them to be up and running. Being the consistent responsibilities and challenges for every business, payroll management is a matter that HR & payroll-specific staff must look out for continual changes in rules & regulations, new & updated forms, and multiple layers of compliance required at federal, state, and local levels. Internal changes of changing employees & vendors, and classifying employees & independent contractors & unexpected disruptions such as pandemic influencing the payroll management process. Such factors make the business owners and stakeholders not confident of the payroll process.

As per the studies conducted by Zenfits, 82 million US employees, or 54% of the American workforce is troubled with payroll problems. This article is aimed at acknowledging businesses the common payroll mistakes and what businesses should avoid. Payroll issues lead to organizational consistencies, incorrect tax withholding, and over-and-under payments to employees that further disorients with overtime miscalculations and employee miscalculation issues. Keeping up-to-date payroll software for attending to HR, payroll, and employee data management helps businesses to be well organized and eliminate the chances for errors. Such payroll process errors prove to be costly and add up to the unnecessary work for the payroll department disorienting employee relations and common morale.

The improvement of payroll processes can be quite a start but having a keen focus on the improvement requirements can be quite challenging. OURS GLOBAL’s Payroll Processing Outsourcing Services helps businesses save money and keep the in-house professionals concentrate on the core competencies. Helping businesses develop payroll processing strategies we help them acquire desired business results.

Following are the Twelve Payroll Mistakes that Businesses Must Avoid:

1. Frequent Missing of Payroll Deadlines

Being the most common payroll mistakes that can land any business in heavy trouble. Along with the legal troubles tarnishing the overall company image of the company, this can also cause the failure in payment of federal or state payroll taxes costing considerable loss of money in fees and interest. With hefty late charges and payment penalties, not only causes financial stress over the company but also distrust among the workforce. The application of suitable measures for keeping up with the deadlines can help businesses in keeping the serious penalties at bay. With varied steps in the payroll process ranging from the number of days worked, leaves taken, commissions accrued to be completed prior to transferring the payments to employees account. Thus even though, this stringent process makes businesses missing a deadline very easily but it’s never an excuse for failure in delivering payment in a consistent manner.   

2. Failure in Maintenance of Accurate & Clean Records

The mistakes in payroll records often lead to catastrophic and undesired business results. While taking responsibility for the creation and maintenance of employee records, the payroll department professionals fail to take ample responsibility for the same. Effective maintenance of clean payroll will be beneficial not only for the employees but also for the business on accurate maintenance of employee records. This will avoid chaos and confusion in the organization. Stated below are the common record-keeping errors that are committed by employers, HR, or managers.

1. Failure in time to time updating of employee data regularly

2. Inadequate Employee Information

3. Fallacious payroll and employee details 

4. Short storage of employee data

Moving up the chances for government penalizations, the failure in maintenance of payroll records will lead to underpayment overpayment of employees damaging the whole business.

3. Unprofessional Payroll Set-Up

Unprofessional payroll setup incurs many errors and it is critical for businesses in eliminating all niches of payroll mistakes over diverse aspects such as taxes, reimbursements, and employee classifications. Without registering businesses with an appropriate set up with ideal federal, state, and local tax withholdings, classified employees or deposits in time will lead to inaccuracy and penalties from the tax authorities. Accurate tax filing requires extensive study of laws and understanding employee withholdings with respect to federal and state income taxes, social security, and other taxes. Failure over the incorporation of ideal payroll laws makes the businesses at risk over tax preparation of tax preparation and filing. 

4. Improper Payroll Data Back up

Without robust payroll data backup, business organizations can lead to undesired results. The problem over data backup also arises when organizations suffer from PC crashes and immediate quitting from payroll managers. With inadequate measures for backing up payroll data in advance, businesses will have to face disastrous consequences.

5. Illegitimate Employee Classification

While each business has to make use of a diverse niche of workers ranging from permanent part-time employees, temporary employees, freelance contractors & vendors, not classifying workers properly can lead to diverse payroll issues. Incorrect employee classification gets businesses in trouble with wage and hour auditing if found guilty of the wrong classification. Even the general classification is critical as classification and compensations get reported to the tax authorities. This also causes problems while entitling workers with benefits & equity compensation and subjecting them to federal income tax and employment tax withholding. Improper employee classification can also lead to miscalculation of results and failure of proper payment of payroll taxes as per IRS regulations. 

6. Overtime Pay Mis-calculation

Miscalculations of overtime wages add up the litigations going up by leaps and bounds. HR managers without following appropriate guidelines can cause mistakes while calculation of overtime wages proving costly payroll mistakes for businesses. Failure in payment of accurate overtime wages to full-time employees will cause payment penalties, interest, and back pay.  

7. Inappropriate Tax Forms & Not Sending the Right Ones

Successful business operation requires compliance with diverse laws related to income tax, employment tax, excise tax, etc. Without on-time submission of all taxes at a specified time by payroll managers can often lead to a mess over payroll tax return filing within the stipulated time frame set by IRS, otherwise leading to penalties. Submission of inaccurate amounts or employee information will also cause businesses other troubles. After processing payments and taxes, businesses organizations are required to forward necessary tax W-2 forms to employees. But failure to forward the appropriate forms to the right employees in a timely manner will cause inconvenience among employees. With tax rates subject to change and not being updated in the payroll will also make businesses owe to taxes and payroll corrections.   

8. Not Being Compliant to Regulations 

Payroll rules and regulations are always subjected to change and businesses must be well updated with them to avoiding penalties at the time of filing. With due dates for filing paperwork, varying penalty structures, and diverse tax structures, mistakes are much prone to happen. With different payroll cycle stages, the increased ambiguity over data generation and improper reporting will also minimize accuracy. This increases the risk and challenges for payroll functionalities and thus chances of errors leading to cost penalties and cut down ROI.

9. Not Hiring Proper Administrative Staff

Most businesses don’t have efficient staff for in-house and manual payroll processing. Payroll processes require extensive paperwork and can create a great administrative burden for HR staff without proper Payroll specialists.   

10. Complications in Software Setup

The compatibility of payroll software programs is critical while ensuring the efficiency of the payroll processes. Varied programs for different employee profiles or records and payments or benefits will lead to incompatibilities. Thus the payroll processes will lead to mistakes and errors to the maximum. 

11. Employee Absences

Manual tracking of employee absences, vacation, and sick days has a great potential for mistakes in the payroll processes. Businesses that use simple digital timesheets and paper time cards are much prone to misuse and unintended errors. Absences also cause inefficient employee tracking that curbs down the effectiveness of business planning and productivity.  

12. Payroll Deductions

The processing of employee payroll deductions is much complex for businesses and payroll staff. With a series of state and federal laws that are applied to such deductions, small businesses and HR departments are much prone to making errors. With such a complex task, businesses must focus on the same phase at the maximum to avoiding any kind of errors in payroll processing stages.  

With keen attention to such factors, business owners and payroll administrators can minimize payroll errors to the maximum. With a proper understanding of the cost of payroll errors, businesses won’t give it a second try. Protection of payroll process will ensure flawlessness and can be critical from the revenue perspective and a cultural, employee-experience perspective. Eliminating bottlenecks ensure accuracy and eliminate bottlenecks is to close the gaps in the payroll process. An ideal service provider such as OURS GLOBAL’s Payroll processing Outsourcing services will help businesses for staying up to date with state-by-state overtime regulations, calculation and submission of tax payments and info, and maintaining financial records backed up for review. Partner with us for avoiding payroll errors to the maximum with clear efforts and helpful business insights. Ping us right away!