5 Common Payroll Errors and How to Avoid Them

Completing payroll online helps mitigate common payroll errors

Payroll is an essential part of your business’ operations. Keeping this process organized and accurate is crucial to ensuring your organization is efficient. However, payroll errors do occur and some might be more common than you may realize.

Read on to learn more about common payroll mistakes and what business owners can do to avoid them.

The Importance of Accurate Payroll

Avoiding payroll mistakes is important for many reasons. First and foremost, payroll mistakes can be costly. There’s the financial cost of these errors that can result in money lost, tax law penalties, and in extreme circumstances, legal cases regarding overtime pay, etc.

You must also consider the indirect costs of payroll errors. When and how much you pay an employee is an important part of their lives. Your team relies on accurate paychecks and overtime wages for their livelihood. Additionally, they require payroll to be accurate to reflect their income tax and more.

Payroll mistakes can be disheartening and frustrating for your workforce. No matter if you operate a large corporation or are a small business owner, it’s important to prioritize a seamless payroll process to help your company be both profitable and retain top talent.

Common Payroll Errors

Without further ado, here are some of the most common payroll issues businesses run into and how you can avoid them.

1. Misclassified Employees

This is one of the most common payroll problems businesses come across. As explained on their site for employers, Indeed explained that employment classifications help ensure companies are compensating workers fairly, for their roles and responsibilities. It also helps businesses follow federal laws and state laws regarding fair labor practices.

Some common examples of misclassifying employees are:

  • Classifying an employee as an independent contractor when they’re not
  • Denying overtime wages to non-exempt salaried staff

The consequences of this payroll error can be millions of dollars depending on the scale. To avoid this error, be vigilant about worker classification practices and take the time to ensure all your employees are classified correctly. An online system can help HR professionals better organize this information to check it at a glance.

2. Miscalculation of Hours Worked

Whether your employees strictly work 40 hours a week, operate part-time, or are eligible for overtime, it’s important to accurately capture their hours worked. Miscalculating time leads to payment errors which can be time-consuming to resolve.

By some estimates, it takes businesses five to 10 days to fix payroll errors. This is frustrating for everyone involved and can even be the push for employees to search for a new position. Payroll software can help solve part of this issue by keeping employees and managers accountable. 

3. Incomplete or Inaccurate Taxes

Payroll involves a lot more than simply paying your employees accurately and on time. As a business, you’re also responsible for other things that fall under the payroll umbrella, such as:

  • Calculating and paying employee and employer taxes
  • Depositing tax withholdings from employees’ paychecks to the correct government agency
  • Reconciling reports and filing payroll tax returns

There are a lot of little mistakes that can occur as you calculate tax rates that can result in major penalties. A payroll tax management system can alleviate some of the stress of making your tax deposits on time and accurately. These systems can automate the process from start to finish.

4. Buddy Punching

This is a common payroll error caused by employees clocking in for others during their shift. By some estimates, 75% of businesses are affected by this practice and it costs employers an average of 2.2% of their payroll.

While this may seem like an unavoidable problem, upgraded time clocks can help solve it. Consider investing in a biometric time clock to accurately represent the time when an employee punches in and out. Also continue to build trust and loyalty among your employees, as this is the best way to help mitigate this practice from the start.

5. Missing Garnishments

Small businesses may not realize they can be held responsible for collecting and paying debts (only those that are court-ordered) owed by employees. Garnishments can include things like fines, taxes, and child support. Wage garnishments are more common than you may realize and can result in severe consequences if mishandled.

Garnishment Services can provide relief through our expert guidance, taking the stress out of compliance with complex legal requirements and allowing you to more easily focus on your business.

Ready to improve your payroll processes for the better and avoid these common payroll mistakes? AllianceHCM Payroll and Tax Solutions can help your business run more efficiently. Schedule a demo today.

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