7 MOST COMMON MISTAKES IN PAYROLL

Of all the employee expectations throughout the employee's lifecycle, proper compensation is one of the most fundamental. However, several external or internal factors can affect the accurate delivery of wages, W-2s, and related payroll reports. To exceed employee expectations for error-free payroll, watch out for these seven mistakes:

1. EMPLOYEE IS MISCLASSIFIED

Misclassification of employees can lead to incorrect compensation. Which ultimately leads to overpayment or underpayment. One of the most common misclassifications is misidentifying whether an employee is exempt from overtime. Under the Fair Labor Standards Act (FLSA), all employees must be paid overtime for all hours worked more than 40 hours per week unless classified as exempt. Classifying a nonexempt employee as exempt exposes your organization to FLSA-related penalties and can cause the employee to miss out on overtime earnings.

Another common payroll error occurs when someone is categorized as an independent contractor rather than an employee. A misclassification error often entails looking up historical payroll records and making retroactive payments or other adjustments to employee wages. In 2019 alone, the U.S. Department of Labor's Wage and Hour Division revoked $322 million in arrears for miscategorized employees. This not only creates trust issues with your employees but can also cost your organization money.

2. INAPPROPRIATE SALARY CALCULATION

Inaccurate paychecks can frustrate any employee, especially if the error results in missed payments. Calculation errors are also a waste of time. As you will have to spend hours or even days investigating and correcting errors outside of the typical payroll cycle. According to a study by the American Productivity Quality Center (APQC), it takes organizations two to ten days to resolve payroll errors. In the time it takes to correct these errors, employees can become frustrated or even have trouble paying their bills.

Wage calculation errors can occur with salaried or hourly employees. Common miscalculation scenarios include:

• Overpaying or underpaying employees.
• Make erroneous payments.
• Lack of first pay for new employees.
• Deducting the wrong amount of benefits or other payroll deductions.
• Unreasonably paying employees while on leave due to disability or other leave.

3.NEED TO TRACK YOUR EMPLOYEE HOURS AND OVERTIME.

Incorrectly noted overtime hours can lead to improper overtime payments, which leads to corrections, possibly across multiple tax years. In addition, correcting those errors takes time and can be incredibly unsettling for employees, whether underpaid or overpaid, who have to return the money to the company.

Overtime pay is more than just paying employees a standard salary of 1.5 times their normal salary when they work more than 40 hours a week. Overtime billing errors can occur if you miss a payment under any of the following circumstances:

• When employees work during breaks.
• When employees spend time commuting between work sites.
• When employees are required to participate in after-hours activities, such as training, teamwork, or company parties.

4.FAILURE TO REPORT ALL FORMS OF EMPLOYEE TAXABLE COMPENSATION

Employee compensation includes more than wages, overtime, commissions, or bonuses. In addition to reporting more traditional forms of employee compensation, you must also report other forms of compensation to the IRS, such as:

• Stock options and other stock bonuses.
• Employee rewards, for example, gift cards or travel bonuses.
• Using the company's personal car.

A small gift or employee bonus may seem like more than just compensation, but the IRS may consider it part of your payroll. Failure to report these other forms of compensation may result in tax penalties for your organization and the employees involved.

5.INCOMPLETE OR UNORGANIZED FOLDERS

An unorganized and inefficient payroll process can lead to disaster. Relying on paper-based processes, manual data entry, or batches of Excel spreadsheets results in errors that can take weeks or months to uncover. Improper filings can also prevent you from missing employee payments or tracking down items that need urgent attention.

Additionally, having a manual payroll system increases your reliance on one person to handle all payroll actions. With an organized and automated payroll system, it would be easier for someone to fill in the position when the payroll manager is out of the office or leaves the company. It can also help you prepare for problems during an audit or process review.

6.MISSING IMPORTANT DEADLINES

Employees expect accurate and timely payroll in each pay cycle. You can give your employees more headaches by missing the end of the pay cycle and paying late. And, if you miss your tax filing deadline, your organization could also face late fees and possible regulatory penalties.

7.W-2 IS INCORRECT

Besides the regular salary, the W-2 is the only payroll document an employee receives from your company. Form W-2 includes the employee's total taxable and gross income and their payroll deductions for benefits, 401k, and health spending accounts. Since employees use W-2s to file their taxes yearly, even a small mistake can have a knock-on effect that causes headaches and leads to W-2 re-issuance, penalties, and employees.

HOW TO AVOID MISTAKES AND IMPROVE YOUR PAYROLL MANAGEMENT

You can avoid the most common payroll mistakes with resources and tools that help you automate the payroll process and comply with legal requirements. Follow these steps to avoid mistakes and increase the effectiveness of your overall pay plan:

1. BUILD A CLEAR SALARY POLICY

Create a manual that outlines all of your payroll activities, including salary exceptions and the process for reviewing and approving changes. It would help if you also created a records management and retention policy. This helps you comply with legal requirements, such as the FLSA's requirement to keep payroll records for up to three years.

2. EVALUATE YOUR CURRENT SUPPLIER AND PAYROLL PROCESS.

A thorough review of all existing processes will help you spot inefficiencies and areas for improvement. For example, if your organization is experiencing bugs and needs a new approach to payroll management, consider changing payroll providers. When determining your company's payroll priorities, you can identify a payroll partner that goes with your goals, then take careful steps to ensure a smooth transition.

3. AUTOMATE AND INTEGRATE PAYROLL PROCESSES

An integrated payroll system automates the payroll process, helping you avoid manual entry and paper-intensive processes that can often lead to errors. Plus, an integrated system aligns payroll operations with time tracking, scheduling, and benefits options, so you can manage labor and ensure data consistency in payroll and personnel data. By automating your payroll activities and integrating them with other HR reports and activities, you can avoid common payroll mistakes and gain the following benefits:

• Adjust employees' actual salary in line with HR activities such as salary adjustment and bonus, helping to classify employees and accurate salary.
• Have a single system to record employee hours and calculate overtime, reducing reporting and billing errors.
• Consolidate reports to help you view and manage labor from a single platform to see payroll changes and variances in real time.

4. DEVELOP DETAILED PAYROLL AND CHECKLIST FOR WEEKLY AND MONTHLY ACTIVITIES

A clear process for pay dates, issuing W-2s, and meeting the payroll tax obligations helps you avoid deadlines and late filing penalties. By following a pay schedule throughout the year, you always know what's coming and can more effectively plan your time on payroll. Follow the latest laws and regulatory updates.

Many laws affect how you handle employee compensation, and regulations change over time. So, in addition to understanding the basic requirements of the FLSA and withholding tax laws, you should also understand how to apply for newer programs like the Paycheck Protection Plan (PPP). By keeping an eye on regulatory updates, you can make changes to your payroll process accordingly, rather than keeping up with every change in the law.

5. OFFER THE RIGHT SALARY EVERY TIME.

Mistakes happen sometimes, but you can take proactive steps to minimize and avoid some of the most common payroll errors. In addition, being well-paid is a great way to exceed employee expectations and build organizational trust. With the support of a trusted partner and an integrated payroll system, you can create an efficient, compliant payroll process and deliver error-free wages to your employees.