It should go without saying that payroll is critical to get right. Of course the biggest reason for this is that you need to properly pay your employees for their work. But on top of that, payroll is your company’s biggest expense. In some industries, it can represent up to 50% of a business’ total costs, meaning that even one small mistake can be detrimental to your organization financially.
But payroll is also complicated. So much goes into getting your team paid accurately and on time — beyond just cutting checks. You need to track your employees’ time and attendance, manage their individually elected benefits, properly deduct taxes, and so much more. In fact, you could be making a mistake you haven’t even thought about.
So what should you look out for? We’ve outlined the most common mistakes we’ve seen along with our best advice for how to avoid them.
Common Payroll Mistakes
Payroll mistakes come in all shapes and sizes — from paying the wrong amount to failing to comply with state and federal regulations. Here are the details:
Incorrect Payments
This happens most often when you’re paying hourly or nonexempt workers. And typically it’s because your payroll is disconnected with your scheduling system, making it easy to lose track of the correct amount of hours an employee has worked or whether or not they’ve worked overtime. You might also face this issue if you use a commission or bonus-based pay structure. In the auto industry for example, it’s common for sales data to live in a disparate dealer management system (DMS), making it tough to correctly calculate total commission.
Missed or Late Payments
It’s more common than you think for companies to miss payroll or tax deadlines — particularly among small businesses where HR or administrative staff is often run thin. It’s also a frequent occurrence among companies that still rely on manual efforts and don’t have the proper tools set up to automate much of the process. Of course missed or late payments can have obvious repercussions such as unhappy employees and hefty government fines.
Misclassification of Employees
Gig and freelance work is more common than ever, and chances are you’ve hired someone at your organization that can be defined as such. But it can be easy to misclassify these folks within your payroll system — especially if your hiring, payroll, and HR management systems are siloed. This can lead to incorrect payments or tax deductions, which can result in fines or wasted time spent fixing the issues.
Non-compliance
Employment and payroll laws are constantly changing and if you aren’t up-to-date, you might miss a deadline, pay the wrong amount of taxes, or generally fail to comply in some way. This can result in fines, penalties, and other repercussions — and it’s incredibly common. In fact, the IRS estimates that 40% of small businesses get fined each year for payroll-tax related issues. This happens easily when you don’t have tax filing or compliance automations built into your system, leaving the burden of understanding complex payroll regulations on you.
Spending Too Much Time on Payroll
Payroll is important but it doesn’t have to take up all of your time. Attracting and retaining talent is harder than ever, so your HR staff shouldn’t be spending all of their time behind a screen manually completing payroll or double checking for compliance. They should be focused on forming connections with candidates and new hires, and overall, creating a better working environment for your existing employees.
How to Avoid Common Payroll Mistakes
The best way to avoid these mistakes is by choosing the right payroll software. There’s plenty of tools out there, and it’s easy to get lost in all of the options. Plus, most payroll companies are focused only on payroll, and can’t support other aspects of HR like hiring, onboarding, and scheduling — ultimately causing many of the disconnects listed above. For more information on how to select the right payroll solution for your organization, check out our payroll buyers guide.
Hireology is an all-in-one recruiting, hiring, and employee management platform that allows you to complete payroll alongside other crucial HR tasks within a single platform. Schedule a demo today to learn more about how Hireology can help you avoid common payroll mistakes.
