How do you avoid payroll errors?
Managing payroll can be one of the most time consuming and error-prone challenges facing business owners today. With labor regulations and litigations on the rise, payroll errors can also be costly to the business.
So, what can businesses do to avoid making mistakes on their payroll?
Ensure correct employee data
Payroll mistakes are just that — mistakes. And sometimes they occur because of incorrect employee onboarding information.
This is an easy fix. Create verification processes for both employees and managers to confirm that new staff have correctly entered their name, social security number, bank account deposit number, deductions for benefits), and have accurately filled out their information on their tax forms.
If you have the budget, an employee self-onboarding software can help your new employee complete paperwork electronically before the start date. And thanks to e-signatures, you’re able to ensure the employee has verified the information.
One reminder: Your employees might have life changes during their tenure, so have a process for staff to update their information. Things like changes in an employee’s address, marital status, or tax deductions can all impact payroll so build this into your plan.
Work with a compliance-first mindset
It’s late at night and you’ve had a long week. You just ran payroll and you’re struggling to reconcile taxes, employment regulations, and new requirements. How much advance notice were you supposed to give your employees of scheduling changes again?
Sound familiar?
Staying on top of all the laws can be tough, but it’s critical to eliminate unnecessary payroll mistakes.
Before a new team member starts their first shift, provide an estimate of where, when, and how often they’ll work. When schedules need to change, use compliance tools that automatically record schedule amendments, calculate the required predictability pay, and capture employee consent to the change.
Additionally, don’t forget to check with outside council if you have any questions about the complexities of your local, state, and federal mandates.
Eliminate human error
Common payroll mistakes are just human errors that any business owner can. Maybe you give an employee a bonus gift card and forget to record it on payroll. That well-intentioned award can actually negatively impact your employee if not listed in their pay. Manually processing payroll isn’t just time-consuming.
Think about all those hours spent pulling information from various sources, like your spreadsheets, timesheets, and banking information. Manual payroll can lead to miscalculations, oversights, and even missing key data. Plus, that makes record keeping and organization even harder.
Instead, use your favorite popular payroll software and integrate it into your time tracking software. With just a few clicks, you can run an accurate payroll. As an added bonus, these tools significantly reduce the time spent on managing employee schedules, timesheets, and payroll from hours to minutes per month.
Empower your employees
Preventing payroll mistakes (and potential future litigations) can be as simple as giving your employees the tools and processes needed to communicate with you and your managers about any payroll inaccuracies.
If your employees catch payroll discrepancies, have a formal process in place so they can report these issues and more importantly, you can quickly resolve the discrepancy before they become bigger problems. Use an easy communication tool or payroll discrepancy form where they can notify you or your managers on any timesheet or payroll errors.
Time and attendance tools can also allow your employees to review and verify their hours worked when they clock in and out which provides a layer of attestation protection for the business.
Increase security
As a manager, you’re looking for ways to keep both your staff and your business safe. And security is a big issue when it comes to payroll. Manually payroll leaves your business vulnerable to payroll fraud, like identity theft and misappropriation of funds. Fraudsters from an outside source can also steal employee tax and salary data if the business doesn’t have proper safeguards in place.
Using cloud-based solutions for time tracking integrated with payroll services can mitigate security risks, as these providers have advanced security measures in places such as two-factor authentication, data encryption, and security certifications to ensure your data is properly stored and protected. Additionally, most payroll providers have built-in security features that can alert your business of payroll fraud.
Not Checking Timecards for Mistakes
When employers are in a hurry to process payroll, they might neglect to do one very important thing before running the numbers: check timecards for mistakes. Incorrect timesheets is a very common payroll error and an easy one to avoid. Overpaying employees can, of course, be costly but underpaying employees can be too. According to the DOL, it is the employer’s responsibility to pay employees accurately.
Not Paying Employees for All the Time They Work
Some employers don’t realize that travel time and waiting time are compensable. This can turn into a big problem if employees do this frequently. Compensable means that it must be paid. Even though employees may not be doing their normal job during these times, they are “suffered to work” by their employers and must be paid for the time. Employers can pay employees minimum wage during this type of work time.
Missing deadlines
It is important to mark your payroll calendar and report and deposit and payroll taxes to federal and state agencies on time. Late deposits can result in hefty penalties and interest charges.
How to Fix It: Automating your payroll allows you to never miss a payday and lets you set pau schedules ahead of time so your payroll taxes are always on time so you avoid late payment penalties that add to big bucks and strain your already heavy workload.
Miscalculating overtime pay
Specific guidelines must be followed when determining overtime pay and miscalculations can be costly. Employee litigation has been a rising trend in recent years where workers have claimed to be misclassified and treated as “exempt” employees and therefore not entitled to overtime.
How to Fix It: When tracking work hours through our time and attendance platform all hours (including overtime) are recorded and collected on organized timesheets that make calculating hours simple. Our integrated, All-in-One platform unifies time tracking and payroll so everything is connected and nothing is ever missed.
Poor record keeping & data entry
Mismatched names and social security numbers are so common that the Social Security Administration set up a special telephone # to verify them. Every year, sloppy record-keeping and data entry mistakes, cost companies millions of dollars in both overpayments and government penalties.
How to Fix It: The Fingercheck self-onboarding features let new hires enter their personal information, so you don’t have any data entry whatsoever). This ensures employee data to be accurate. you simply enter all important records and data such as SSN# one time and save them securely on the cloud for easy, anytime access. Furthermore, our software is integrated with our Time & Attendance platform for all work hour records that are neatly organized and always accurate. Now that’s an All-in-One solution!
How Much Do Payroll Errors Cost A Small Business
Entrepreneur.com reports that payroll mistakes can cost approximately $4 to $9 each pay period. This does not include the amount of money that you may be overpaying your employees. Let’s say that you have an employee that make $15/hr and this employee is somehow gaining an additional hour of pay each week. With 52 weeks in a year, this increases that one employee’s salary by $780 per year. Keep in mind that this is only for one employee… this could be happening for all of your employees. You are basically giving away this money for free.
Then you have the trickle down effect. Your small business plans, schedules, purchases, hires, and has other investments that are set to a specific budget. If you are dipping into your payroll budget then guess what, you start to dip into other budgets as well. Everything will have to decrease in order for you to makeup for the payroll errors that are taking place. This could have been going on for years and you just don’t know it yet.