Payroll management requires accurate record-keeping to ensure that payments made are on time and that legal regulations and compliance are adhered to. The payroll department ensures that employees’ payroll records are updated, overtime calculated, bonuses granted and reimbursements made. The slightest error with this system may put the entire business in jeopardy and significantly affect its reputation. So what are these business errors you may encounter and how can you avoid them?
1. Overpaying or Underpaying Employees
When employees are overpaid or underpaid, it may significantly impact your cash flow. When underpaid, you may have to pay back the outstanding amount with any accrued interest and additional penalties. Overpaying an employee holds a direct financial implication as the business may have to pay more taxes to the respective authorities.
The best solution for this problem is to use an appropriate payroll management system when calculating the pay due to the employees. Countercheck all figures and ensure the employee, payment, and tax information are correct.
2. Erroneous Tax Calculations
Getting your business tax calculations accurately is extremely important, especially if you have several businesses in different locations or countries with different tax laws. Paying the wrong tax amounts is a serious offense in most countries and may have serious legal repercussions. The tax laws are constantly changing and failure to keep yourself updated on the same may lead to paying the wrong tax rates.
The best solution to avoid this problem is to keep tabs on the latest changes in employment and business tax rates. Investing in comprehensive software to manage the payroll will help you comply with the different tax rates based on your location. Any new changes to the taxes should be effected by updating the software.
3. Misclassification of Employees
Misclassifying employees can lead to erroneous payments since they are classified as exempt or not. Under the Fair Labor Standards Act, employees not classified as exempt have to receive overtime if they work for over 40 hours in a week. Failure to pay overtime to an employee opens up your organization to fines and penalties under the FLSA.
The IRS considers these errors as serious offenses; hence if you manage a restaurant, you need a reputable program such as a restaurant payroll software to help in this classification. Having independent contractors manage the payroll can also help eliminate such errors.
4. Failure to Comply with Tax Deadlines
Missing tax deadlines can land your organization in legal problems with authorities and project a negative image of the company. The financial consequences of this delay are the payment of penalties and late charges, which may be costly.
To avoid this mistake, keep track of the tax due dates and have reminders when the deadlines are near. Having the banks automate this process is also a good way to pay your taxes on time. Once the payroll is ready and shared with the banks, the payment of the compiled taxes can be paid to the necessary authorities automatically.
5. Keeping Inaccurate, Disorganized, and Incomplete Payment Records
Businesses need to keep accurate, complete, and organized employee payroll data. If this information is required and not available or is misleading, your business may face several penalties and fines. When audits by the IRS and other bodies are conducted, such records will be flagged and the inaccurate financial information may negatively impact your company’s image.
Investing in a program that can keep accurate information organized is important. Any further changes can always be updated to the system. Consider having proper storage to avoid loss of employee information such as pay records, timesheets, and W-2s.
6. Lacking Backup of Records
The IRS demands that payroll and employee records be kept for four years after leaving your organization. Not backing up this critical information is a critical payroll mistake that may lead to data loss due to natural disasters or data corruption.
It is important to have a backup strategy that will restore any data lost. Investing in cloud storage, fault-tolerant disks, and off-site data storage effectively protects your organization from data loss.
7. Not Having Enough Staff to Handle the Payroll
Not having enough staff trained to handle the payroll is a major mistake that several organizations make. Relying on a single individual to handle this task may inconvenience the organization as issues such as sickness, vacations, and leave may come up.
If your organization is unwilling to outsource payroll-related services, it is better to train more than one individual to handle the payroll. A competent team is much better than a single individual as they can help countercheck the final payroll for any errors and omissions.
An efficient payroll management software can keep your data safe from error, corruption, or loss. While it may not be possible to avoid all these errors, it is possible to eliminate a majority of them with effective and proper planning.