Common Payroll Errors & How to Prevent Them

When it comes to important departments at your organization, it's easy to focus on the flashier ones - sales, marketing, the corner suites. But the truth is, payroll is the backbone of your company. Without it, you don't have payments hitting bank accounts, and no matter what kind of stellar culture you have going on, you'll be hard-pressed to get employees to work without steady pay.

With such a critical piece of your business riding on their work, it's important to know what the payroll department is up against. Here are some common payroll errors and how to avoid them.

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Do You Even Work Here?

Here's the problem: Employees - or are they contractors? - are classified incorrectly.

Correctly doling out payments to contractors, nonexempt employees and exempt employees is harder than it sounds. An incorrect classification of a worker (a line that is increasingly blurred in the gig economy) can lead to audits, costly retroactive payments and labor hours that could be better spent.

Solve It

  • Make sure payroll has a good grasp on the Department of Labor's Fair Labor Standards Act guidelines, which can be found here and help differentiates nonexempt and exempt employees.
  • The IRS says an independent contractor is: "an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."
  • Handle taxes appropriately. The earnings of a person who is working as an independent contractor are subject to self-employment tax; employees are subject to FICA (Social Security tax and Medicare).

Too Many Cooks in the Kitchen

Here's the problem: Payroll is flush with sensitive data, and too much access can get sketchy. In today's security breach-risk environment, it's important to be vigilant about protecting employees' personal information. With paper-based data entry or even unsecured digital data, payroll is vulnerable to identify theft, fraud, phishing and more.

Solve It:

  • Make sure all employees - not just payroll pros - have taken quality cyber-security training.
  • Be conservative about who is granted access to this important information, from your own employees to third-party vendors
  • Keep track of who has access, what they can access, how they access it and why they need to.
  • Have a process in place for ending access to employees whose roles have changed.

Hold On, How Much Should Be on Your Check

Here's the problem: Honestly, it's kind of confusing figuring out how much everyone should be paid. It seems cut-and-dry, but once you take into account overtime (or does that employee qualify for it?), tax, withholding, incentive programs, non-paid time-off, FMLA, short-term disability, wage garnishment, bonuses and the dreaded final check for departing employees, the numbers can get a little wonky.

Solve It: Automate all this data with employee payroll software that:

  • Pulls employee and payroll data directly from where you inputted it
  • Syncs data in real-time, so if workers update their information, you don't need to manually change things
  • Provides employee check previews to cut down on errors
  • Seamless clock-in/clock-out functionality

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You Can Wait Until Next Week, Right?

Here's the problem: Payments don't go out on time. This kind of error creates instability at your company and chips away at the trust your employees have in you. Even if they love their job, they probably love being able to buy groceries more. Not paying your employees on time will have a direct impact on retention, morale and your overall bottom-line - not to mention potential legal trouble. 

Solve It: 

  • Don't put off payroll, even if it's the No. 1 thing you hate dealing with. 
  • Automate the payroll process through a reliable and intuitive employee payroll software system.
  • Look for one that minimizes exposure to fees and IRS penalties, is easy-to-use for administrators by being cloud-based and not requiring special technology, and is fully integrated to relevant HR systems. 
  • If pay disruptions come up, communicate the issue ASAP to workers, show empathy for the impact it may have on them and be transparent about how you're working to address the problem. 

 Sensitive Data Not Being Treated Sensitively 

Here's the problem: Data, data everywhere, and nowhere's safe to store it. Workers have to provide a lot of sensitive information to payroll, from full names and addresses to social security numbers. If your payroll department is paper-based, that information is vulnerable to physical theft, and digitally housed information can be hacked from the outside, or even taken advantage of by a wayward employee. This documentation needs to be kept stored for compliance reasons, but it also needs to be kept up-to-date and disposed of appropriately when the time comes. 

Solve It: 

Payroll departments have got to have employees' backs, but without a robust employee payroll software system, that can be difficult. When it comes to the critical nature of getting workers paid, payroll and HR need to work together to make it happen.

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