Common Payroll Mistakes and How to Avoid Them
For a business, irrespective of its scale, industry of operation or goals, payroll duties are a key element. Effective payroll management ensures the employees are motivated with correct and on-time payments, & the business’ financial and brand reputation remains intact and strong.
Moreover, government regulations and compliance for payroll management is also an inevitable part of any firm’s operations. Businesses employ various methods to calculate employee payroll and calculate payroll hours. Nevertheless, not having the correct software in place can often result in systemic or clerical errors that hamper a business’s ability to accurately pay employees on time.
Businesses that use manual traditional methods for payroll often make mistakes and overpay for field staff who might be filing their timesheets with incorrect information. Let’s take a look at some of the common payroll mistakes and how they can be resolved.
Miscalculation in Payroll Management
The most common error, namely wage miscalculation in payroll management is also agonisingly the most serious, and recurring error.
An incorrect paycheck can be frustrating for any employee, particularly if the error results in missed payments. Miscalculations also waste time, as you’ll need to dedicate hours or even days to investigate and correct errors outside of the regular payroll cycle.
According to an American Productivity & Quality Center (APQC) study, organisations take between two and ten days to resolve a payroll error. In the time it takes to fix those errors, employees can grow frustrated or even have trouble paying their bills.
While you want to avoid any payroll error, the least you can do is write an employee payroll error letter to let them know what happened and what you’re doing to resolve the issue.
Pay miscalculations can happen with salaried or hourly employees. Common miscalculation scenarios include the following:
Payroll errors can seriously erode a companys’ credibility. As a result employees get paid later, sometimes they get a wrong amount of salary and so many other issues that affect the normal life of employees. All of these add up to the frustration of the employees in the end.
Solution:
For accurate payroll, a firm should employ real-time tracking solutions with seamless integrations to their payroll system. This is because advanced time tracking solutions capture accurately the time employees spend on tasks in the field, reducing errors. Integration with the payroll system helps bring this time tracking data from the field directly into the payroll system without any manual intervention.
As an organisation expands, manual payroll processes are unable to scale. An automated payroll workflow is the only option that handles the complexities in a field service organisation.
No tracking work hours and OT of employees
Government regulations mandate different rates and methods of calculating and paying OT or overtime to workers according to their location and nature of work.
While employees are out in the field, there is a lack of visibility into their working hours and when they might be working overtime. Without any tracking, the business is dependent on the employee to report if they worked overtime and how many hours they put in.
Solution:
Firstly, it is absolutely essential to know the pay requirements by state. Second, an organisation must be able to track worker hours and be able to ascertain if they are working regular hours or doing overtime. In addition, overtime rates are different from regular rates, hence its critical for time tracking systems to apply the appropriate rate for every task performed by every employee in the field.
Fragmented or incomplete employee payroll records
Manual or semi-automatic time and employee tracking often leads to huge data gaps which lead to inaccurate payroll.
Employee payroll records must contain the employee codes, name, clock-in and clock out timings, duration of work, exit time, break hours, OT hours (if any), standard wage rate and overtime wage rate as determined by the State.
A dashboard or report consisting of all of the above might still not be the most optimal solution since such data can be in fragments obtained from different sources, and in non-real/deferred time.
Solution:
Time tracking software is ideal to address data gaps since it comprehensively tracks all employees during work hours and captures time clocking data along with all the details, pay rates and overtime hours. Integration with payroll systems enables this time tracking data to be sent directly to payroll with high accuracy. Complete data capture can also help companies analyse employee performance which can be beneficial as well.
Incorrect employee classification
FLSA (The Fair Labor Standards Act) provides guidelines for OT and minimum wage for most employees, even though independent contractors are not afforded the same safety. Similarly, exempt and nonexempt employees also have different legal rights and protections.
Some firms mistakenly misclassify exempt and nonexempt employees leading to legal compliance issues. These errors can lead to missing tax payments as well as inaccurate paychecks.
Another common payroll error happens when an individual is classified as an independent contractor rather than an employee. A misclassification error often results in having to research historical payroll records and make retroactive payments or other adjustments to employee pay. In 2019 alone, the US Wage and Hour Division of the Department of Labor recovered a record $322 million in back pay for misclassified employees. Misclassification not only creates trust issues with your employees, but it is also likely to cost your organisation money.
Solution:
Having a time and employee tracking system with desired capabilities can ensure that incorrect classifications are flagged immediately or at desired intervals. Since time tracking happens in real-time, it is an error-free and self checking system that ensures that no misclassification can occur.
Missing important deadlines
Employees expect timely and accurate pay each payroll cycle. By missing the close of a payroll cycle and making late payments, you can create more headaches for employees. And, if you miss tax filing deadlines, your organisation can face late filing fees and possible regulatory penalties as well.
Solution:
As a well known organisation you must pay attention to all these nuances. Your organisation’s growth depends on your employees. If you want them to work efficiently then you must overcome this payment related issue as well as any other facilities your company provides to your employees. Simple logic: if you keep them satisfied, they will work hard for your satisfaction as well.
Inability to synchronise employee tracking data with the company’s payroll system
Firms often use payroll software solutions such as ADP, Gusto, Quickbooks, Paychex etc.
Yet, inaccuracies happen due to manually moving data from attendance apps, time tracking devices, clock in-clock out solutions as well as the employee’s work device such as a laptop or mobile phone.
This is due to the inability of field management, attendance and location tracking software to integrate seamlessly with top payroll solutions like those mentioned above.
This not only leads to loss of time cost in moving data from one platform to another, but it also creates a hurdle in data flow since the data cannot flow seamlessly between the payroll platform and the other.
Solution:
The best solutions need to work in-tandem with the payroll management software. Integration between a time tracking system and the payroll system ensures that data can move seamlessly between the two systems. Time tracking data needs to be sent to the payroll system while the payroll system provides information about pay codes that correspond to different pay rates.
Some things to consider before picking the right solution are:
Payroll errors and discrepancies are common and costly. Many firms and their management are aware of the primary payroll issues in the firm and any attempt to resolve these manually is usually not scalable or repeatable.
A firm could reach optimal levels in execution as well as accuracy in payroll management by utilising an automated tracking and payroll workflow solution. Truetym’s optimised payroll management process where data flows seamlessly between time tracking and payroll systems can reduce costly payroll errors and improve productivity across the organisation.
