4 Common Payroll Mistakes and How to Fix Them

And while running a seamless payroll may sometimes feel like a thankless job, it affects many other elements of the larger organization, like employee satisfaction and even company culture. Invest now in perfecting the payroll process so your company doesn’t pay for it later. As you can see, keeping your payroll error-free can be time consuming and complex. However, if you don’t do your best to manage and avoid payroll mistakes, the risks to your business can be significant.

Furthermore, HR and payroll professionals receive an average of 30 pay-related questions from employees each pay period. As long as everyone involved is aware of important stipulations and understands how to legally manage payroll, you can avoid many — if not all — of these mistakes. You can improve your chances even more by using a reputable payroll system (like Gusto) or a payroll service (like a PEO). Payroll management, while complex, is a manageable challenge with the proper knowledge.

Common Errors to Avoid

You could also fall out of compliance with labor laws by not paying employees what they’re owed. Incorrect pay calculations will also inevitably give rise to inaccurate tax filings and accounting ledgers, causing further compliance issues. Imagine that you’re running your company’s payroll when you notice that a few employees seem to have much smaller paychecks than usual. You check their timesheets against your payroll data and realize you’ve just underpaid them. By then, their direct deposit has already landed in their bank account.

If you use a payroll service, notify them so they can ensure the garnishment is withheld and remitted to the proper authority. While the rules in each state vary on stopping child support garnishments, it’s best to keep withholding until you receive written authorization regardless of what an employee may tell you. In this article, we’ll discuss the most commonly made payroll mistakes, the effect they can have on your company, and strategies to limit the likelihood of errors.

1. Employees need W-2 forms, while independent contractors who earned $600 or more need 1099s.
2. Many payroll errors result from payroll staff who are not current with the latest tax regulations for payroll compliance.
3. Having a centralised system where data is synced and stored means you can wave goodbye to duplicate payroll data — removing the need for manual data entry.
4. To steer clear of forgetting to send out tax forms at year-end, you can set reminders, mark your calendar, or use a payroll service that does it for you.
5. Subsidized health insurance plans, gym memberships, and commuter benefits are just some of the extras that small businesses extend to employees.

From FLSA, EPA, Workers Comp and more, there are lots of federal laws to keep track of to ensure payroll is compliant. That’s why HR and business owners need to have processes in place to consistently apply pay policies, accurately calculate overtime and streamline leave policies. The good news is that there are payroll resources that can help, starting with this list of common payroll errors to watch out for. Under both state and federal regulations, employers are required to pay employees for all wages earned and due, in accordance with the designated pay period.

If so, you may be making a mistake and it may be time to reevaluate your payroll process. No worries—I know how difficult it can be, especially when you have a million other things on your plate. Our guide on the difference between independent contractors and employees goes over the distinction in detail, provides resources, and more. Having a centralised system where data is synced and stored means you can wave goodbye to duplicate payroll data — removing the need for manual data entry. Manual data entry wastes time and increases the chances of human error.

Not having solid payroll policies and procedures in place

However, this seemingly straightforward task of processing payroll can hold many potential pitfalls. Processing employee payroll can be time-consuming and highly complex. Some payroll https://www.quick-bookkeeping.net/ taxes like Social Security, Medicare, and FUTA are fixed percentages of an employee’s wages while others depend on tax rates imposed by the federal and state governments.

Keep an eye on your inbox or mailbox for notifications about rate changes. For some extra peace of mind, you can also contact your state and local governments to check on rates or do a quick Google search. And for complete peace of mind, go ahead and use reliable cloud payroll that automatically updates tax changes. I hate to break it to you if you didn’t already know, but some tax rates can change from year to year. And if they change and you don’t realize it, that’s where a payroll blunder can come into play.

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Not reporting these other forms of compensation can result in tax filing penalties for your organization and the affected employees. According to an American Productivity & Quality Center (APQC) study, organizations take between two and ten days to resolve a payroll error. In the time it takes to fix those errors, employees can grow frustrated or even have trouble paying their bills. Many payroll mistakes occur as a result of payroll administrators not having enough or the right information. You must pay employment taxes on a regular basis as an employer.

Not filling out or filing employee tax forms correctly also impacts your ability to pay the company’s payroll taxes accurately. This is not only a compliance issue for the business but can also result in you owing the IRS a lot of money. The end of the year (and the start of the new year) is a hectic time for payroll https://www.online-accounting.net/ professionals. After a year of processing payments and taxes, organizations must send employees all the necessary tax forms. Employees need W-2 forms, while independent contractors who earned $600 or more need 1099s. In virtually all cases, businesses pay independent contractors without withholding taxes.

Inability to maintain clean records

That’s why it’s important to catch and fix payroll errors as soon as possible. If you accidentally misclassify an employee, you may end up denying them the wages they’re due. This can cause tax and accounting errors and put your business at risk of labor law noncompliance. Things get even more complicated if your business operates internationally. Independent contractors also adhere to different pay schedules.

Identifying Employees vs. Contractors Incorrectly

The thought of making a critical payroll error can be anxiety-inducing. Tax form errors can result in an employee having the wrong amount withheld from their paycheck. If too much is withheld, the employee will receive a smaller paycheck than expected, which could cause financial stress or a loss of trust. Here are some https://www.bookkeeping-reviews.com/ of the most common payroll problems and how they affect businesses. It can be difficult for HR and payroll professionals to keep up with all the paperwork, calculations, and compliance needs for every employee. While most payroll runs aren’t problematic, a lack of time to process payroll means sometimes things go awry.

From errors experienced by 1 in 4 employees to late paychecks at 32% of smaller businesses it’s clear payroll mistakes happen. As a business owner, mistakes like this can keep you up at night. Luckily, there are steps you can take to reduce the likelihood of payroll problems as well as minimize their impact on your employees and business. What payroll errors should you be aware of so you can avoid them? Errors do happen sometimes, but there are proactive steps you can take to minimize and avoid some of the most common payroll errors.

Payroll mistakes can be costly in terms of lost revenue, the staff time required to correct errors, and potential legal action and fines. You must pay employees at least the prevailing minimum wage for the regular rates of pay. Part of your role as “employer” is determining if a worker is a contractor (1099) or employee (W-2). And if you misclassify employees, you could wind up with a lot of issues down the road (like penalties and interest for unpaid taxes—big yikes). How can PayFit help your business improve its payroll processes? Schedule a quick demo or watch this demo video to see what we can do for your company.

The payroll process can be error-prone, but keeping missteps to a minimum is crucial for the benefit of your employees and your business as a whole. The first step to avoiding mistakes is to be in the know about what they are. An incorrect paycheck can be frustrating for any employee, particularly if the error results in missed payments. Miscalculations also waste time, as you’ll need to dedicate hours or even days to investigate and correct errors outside of the regular payroll cycle. Because payroll mistakes sometimes go unreported, you are frequently ignorant of the harm done. As a result, the consequences of these errors accumulate gradually before shocking your company.