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Don’t Let These Common Payroll Mistakes Cost You

If you’re an employer, it’s important to be on top of your payroll. The last thing you want is to be faced with tax penalties or even prosecution for non-compliance. Here are the most common mistakes made when it comes to paying your employees.

Mistakes in payroll documentation

Payrolls should be accompanied by documentation that proves what you’re doing. This is important especially in proving that the payroll of the employees was not fabricated, but based on truthful accounting of their rendered work hours along with other benefits. This is easily done through a robust documentation practice. Questions, disputes and any concerns about payrolls must be addressed immediately, even after they have been run and disbursed.

Late processing of New Hires

During the pay cycle, the payroll processor should check whether any new hires have been added and confirm that they have been added to the system correctly.  Make sure you have set up the proper withholdings, correct deductions are in place, and that you have the correct information on file for direct deposit.  Check-in with new hires after they start to make sure their pay looks okay, that they understand their paystub, and that they do not have any questions.

Terminations

Payroll mistakes abound, and here’s one of the biggest. If you end up terminating during the pay period, it may or may not affect your payroll cycle. You must have your termination information on file, including the date of termination and any additional compensation (such as PTO, bonuses, reimbursements, and so forth). If you provide separation agreements, be sure the payment is handled accurately and in a timely manner once that agreement has been signed. Other post-termination matters should also be well-documented to ensure that you have facilitated the timely payment of these dues to your previous employees. It will be a huge hassle to face litigations or handle irate calls because of these matters.

Raises/Promotions

Raising salaries and promoting employees are common.  Does your company have the necessary documentation to support these changes?  In addition to effective dates, old and new rates or amounts, calculations, and what’s expected of HR personnel, the documentation should also contain titles, additional goals, and responsibilities. This is important to make sure that the payment is commensurate to the job and should there be any litigation in the future, your legal team and the company has a better grasp of the situation including employment records, obligations and any company-related information.

Reviewing Hours

If your company has a lot of part-time employees, you’ll need to ensure that you’re correctly entering or importing their work hours to prevent payroll errors.  Paying non-exempt employees means knowing what the wage and hour laws are (overtime, minimum wage, meals and rest breaks, etc.). This is to build a good reputation for the public as a pro-employee company. Word of mouth from part-time employees can best position you to talented individuals in the market looking for work opportunities.

Reimbursements

If an employee is owed any reimbursements, you will either need to import those amounts or enter them into the appropriate field in your payroll system. Reimbursements should never be added to gross wages.  Whenever you will be issuing a reimbursement since the employee will be receiving these amounts before taxes, be sure to keep documentation.

Withholding mistakes on payroll

It is essential to get this right.  Withholdings should be entered by payroll administrators. Ensure that your employees review their pay stubs and withholdings.  To make sure that they file correctly, their withholdings are correctly calculated, and that taxes are paid to the right state or municipality, this includes checking their filing status. Additionally, garnishments should be considered.

Bonuses

Make sure you know whether any bonuses need to be paid out for the pay period.  Additionally, you should check whether the bonus needs to be prorated or adjusted, or whether there are any terms associated with it. This contributes to the overall goal of the company in ensuring that employees feel satisfied with the company, helping retain deserving, talented employees. 

Commissions

Commissions are frequently subject to payroll mistakes. If you have salespeople paid through commission, don’t overlook this.  Wages and commissions can be included in the same paycheck, or they can be paid separately.  Make sure to double-check the calculations you’re using to determine your commissions.

Benefits

Make sure that the benefits withholding amounts are correct and that they are withheld correctly.  Wages should reflect the correct withholdings on pay stubs. The payroll administrator should take the extra step to ensure that the correct amount matches the correct tier of coverage and the correct plan, especially if the company is engaged in various plans.    

Payments to contractors

Does this cycle require the payment of any contractor payments?  Paying contractors around the same time as payroll for the first half of the month is common in smaller companies.  The objective is to maintain cash flow awareness, to confirm the invoices received from contractors for the previous month, and to confirm cash flow. 

Actions taken after payroll

There can be times when actions are needed after payroll has already been run.  Making changes to a payroll or human resources system, entering a payment received after payroll was already run, or making changes for the next pay cycle might fall into this category. Follow the checklist below if you’re running payroll for your company. It will help you avoid errors and run a more reliable payroll.Arranging payrolls can be a hassle, especially for medium to large businesses which manage hundreds to thousands of employees. Keeping track of everything can be a daunting task but with the help of proper guidelines and mechanisms, this can be done accurately and swiftly. If you are looking for a company that can manage your payroll, schedule a 20-minute consultation with our experts to know more.

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