It is needless to say that payroll management presents many challenges for many businesses. Well, with several HRIS solutions, organizations have been able to address payroll challenges more easily.
These solutions even enable organizations to easily deploy seamless employee experience into their management culture. Issues such as federal tax compliance, overtime, contract worker remuneration are easily handled by payroll software and the process is automatic.
However, payroll management can be impacted by various internal organizational factors. For instance, an employee is joining or leaving, leave management for different employees, changing vendors, and unprecedented events such as the recent ongoing COVID-19 pandemic. Hence, these process changes may result in payroll mistakes which may be costly.
The purpose of this article is to provide a guide towards error-free payroll management. Additionally, you will discover common payroll mistakes and also how to avoid them. The point is, when you understand these common payroll mistakes you will be able to avoid them and ensure an error-free payroll.
Here are common payroll mistakes and steps to avoid them:
Improper Classification of Current Workers and Exempt Workers
One of the major causes of payroll mistakes is improper worker classification. Every organization, no matter its size, has regular stable employees and independent contractors. It is also possible that your organization works with contract staff. We’ve seen many businesses mix-up these categories of workers which could be costly. To avoid this, the golden rule is to avoid paying contractors minimum wage or overtime wage.
Establish a fixed contract with them and stick to that. But if you misclassify a regular employee as a contractor, they might miss out on minimum wages, overtime. Employee misclassification can cause losses to the federal and state governments by paying lower tax revenues
In the case of exempt or non-exempt workers, we would advise you not to pay overtime wages to exempt workers. However, non-exempt workers should be paid overtime wages when they work above a certain period per week. Hence, if you misclassify a regular worker as exempt from overtime wages, they would miss out on wages and you would be owing them overtime wages. Proper employee classification is an important practice towards error-free payroll management.
Paying the wrong tax rates
We’ve seen situations where tax rates change twice or even three times within the same year. Tax rates change every time and they may cause payroll issues. When you pay lower than actual tax rates you will be owing taxes and you’re at risk of Government penalties. Similarly, when you pay more than expected you will be losing out on money and hence profits.
Taxes are usually updated from time-to-time so you must ensure to be current with existing tax rates. Some of the taxes you would need to update your rates for depending on your business location include:
- Federal income tax
- Local income tax
- Social Security tax
- Medicare tax
- Federal unemployment tax
- State unemployment insurance tax
Running Payroll Late
Running Payroll late could affect your business integrity and may even lead to your employees losing their trust in you. Ensure to set accurate dates of running payroll at the right time.
Compliance-first Mindset is the Best
You will save yourself from running into a lot of troubles when you work with a compliance-first mindset when processing payrolls. Understandably, staying up-to-date with federal and state Government laws on salaries, wages, taxes may be tough, but it’s however critical to eliminating payroll mistakes.
Ensure to periodically check these laws so you can automate them into your payroll software. Also, ensure that all forms of taxable employee compensation are reported.
Steps towards error-free payroll involve establishing clear policies on payroll management for HRIS solutions. Ensure to also create a policy around record management and retention. Having done that, you can automate these into your payroll processes.