Among those surveyed, the most common mistakes include those related to time and attendance, and expenses, which occur on average more than once per employee per year. And the mistakes that proved to be the most time-consuming to resolve include missing and incorrect time, sick time, expenses, and mistakes related to setting up health savings plans. If your payroll records have errors, it can throw off all your numbers. These kinds of mistakes are especially likely if you manually input the data. You must pay employees at least the prevailing minimum wage for the regular rates of pay.
Most of the time, it is difficult to ensure your payroll process complies with all the laws governing a business. However, with the right systems and software in place, you can avoid getting caught how accountants handle accounts payable and payment transactions in a situation where you have to pay a large sum of money or face other repercussions. As an employer, you’re responsible for holding onto a portion of employees’ gross pay for taxes.
- However, your state may have different policies regarding overtime; always comply with the law that is more generous for the employee.
- While Massachusetts, California and New York have pushed to protect equal pay, states like Florida, North Carolina and Alabama have close to nothing on the books.
- States may have stricter guidelines on who may or may not be considered exempt.
- Your administrators can use it to keep track of all of the details and ensure that everything is accurate.
After all, inaccurate payroll may lead to fines or other penalties. Not only can misclassification deny an employee important benefits and wages, it may also mean the government misses out on valuable tax dollars. These fines cost an average of $5,200, with the largest fine reported as $100,000. With a process as complex as payroll, there are numerous places where organizations can make payroll mistakes. Here are some of the most common payroll errors to watch for in your company.
Common Payroll Issues + How To Avoid Them
That might mean cancelling the payroll and reprocessing it or planning changes to counteract the previous mistakes in the next payroll. Failing to get the right forms to the right people in a timely manner isn’t just inconvenient for employees—it can also spell trouble for your company. From tax deductions to direct deposit, BambooHR makes it easy to manage your team’s total compensation in a single, centralized system. An accounting professional can help you decipher how payroll works and which fringe benefits create payroll liabilities. You may be hard-pressed to remember all the different withholding, payment and filing procedures.
Under both state and federal regulations, employers are required to pay employees for all wages earned and due, in accordance with the designated pay period. However, as far as payroll errors go, it’s not uncommon for employees to be overpaid or underpaid due to matters like withholding or overtime miscalculations. If you overpay an employee, you have the right to recover the amount but states may have specific rules for doing so. If you underpay, you’ll also need to follow the requirements for your state. For example, in Oregon, you can wait until the next pay period to correct the mistake if the amount is less than 5% of the total paycheck. A best practice is to use a payroll software or provider for accurate calculations.
Preventing each error listed above takes a variety of strategies, but we’ve included our top suggestions. Incorporating these elements into your payroll process can help you catch errors before they happen, making payroll faster, easier, and more accurate. That’s why we’ve wrangled all the important payroll to-dos you need to ensure accurate, on-time payroll runs for your company. Most payroll mistakes can be avoided with proper planning and education.
The Gig Economy is Affecting Compliance
If you use a payroll service, notify them so they can ensure the garnishment is withheld and remitted to the proper authority. And remind employees to let you know when their information changes. Payroll taxes are due to the IRS by specific dates, typically on a quarterly, monthly or semi-weekly basis.
For example, if you pay a worker $10 per hour, you must pay them $15 per hour of overtime ($10 X 1.5). When it comes to running payroll, you take on the role of being a deadline tracker. No worries—I know how difficult it can be, especially when you have a million other things on your plate.
Not All States’ Pay Parity Laws are Created Equal
Regardless of intent, if overtime wages aren’t paid employers may be in danger of lawsuits and penalties. Under the Fair Labor Standards Act (FLSA), the federal law requires covered non-exempt employees to be paid a minimum wage of $7.25 per hour. When an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate.
On top of the human and business impact of payroll mistakes, you may face penalties from the IRS, Department of Labor, or other legal authorities, especially if you miss a filing deadline. Incorrect summaries or filings can mean you miss tax deductions, too. You may also be in violation of the Fair Labor Standards Act (FLSA), which is the federal law that establishes minimum wages, overtime, recordkeeping, and child labor laws in the U.S. Failing to meet any of the standards set forth in the FLSA can lead to fines and possibly even jail time. Mismatching Social Security numbers and employee names is such a common occurrence that the Social Security Administration even provides Social Security number verification services. Other data entry errors, such as keeping inaccurate employee hours, can cost businesses millions of dollars every year and can also result in those pesky fines and penalties.
By establishing good payroll practices and partnering with solutions to help avoid errors, your company can save headaches, time, and money. Many payroll errors are the result of payroll admins not having enough information or not having the correct information around payroll compliance. https://accountingcoaching.online/ But with so many steps in the payroll process, missing a key deadline is all too easy. Your employees count on your organization to deliver payment consistently and on time; failing to stick to a reliable schedule can damage employees’ trust and opinion of the company.
Many small and medium-sized businesses turn to outsourcing for help with tax filings and other complex administrative tasks related to processing payroll. Manual payroll processing exposes employers to human error and can consume valuable time to correct. Invest in cloud-based software or hire a payroll service provider to streamline the process and reduce the risk of errors. From miscalculating pay to record-keeping errors, a simple payroll mistake can cost your small business. Here are some of the most common payroll mistakes (and how to prevent them). Are the workers also correctly classified as nonexempt employees?
In the gig economy, temps, freelancers, consultants and other independent contractors are commonly found in many industries. It’s essential that you accurately categorize everyone who works at your business, so you can properly report your payroll taxes to taxing authorities. To simplify your payroll process and avoid all of the above mistakes (and more), consider your options. To help with calculations and taxes and keep up with ever-changing tax laws and rates, you may find it easier to use payroll software. You can also outsource your payroll to an accountant to handle everything for you. When it comes to payroll taxes, deadlines are no less important.
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