Payroll is complicated. Accuracy and timeliness are of paramount importance and there is no room for error. Despite this fact, mistakes happen and the price employers pay for these mistakes can be costly. Ramifications include: paying back wages and taxes and/or hefty fines and penalties, and in, some cases, even lead to prison time.
Here are five of the most common payroll mistakes companies make.
1. Incorrectly classifying employees
The emergence of the Gig Economy has led to an increase of independent contractors. This means that more and more often employers are having to be sure to correctly identify their workers’ status as either an employee or as an independent contractor. The penalties for misclassifying someone as a contract worker vary depending on whether the IRS and Department of Labor (DOL) determine the misclassification was unintentional or on purpose.
The U.S. Department of Labor's Planmatics Study found that between 10% and 30% of audited employers misclassified workers.
2. Paying the wrong amount for taxes
Paying too little, or too much, in payroll taxes is most frequently due to simple errors on tax forms. While an incorrect total or entering an amount on the wrong line may not sound serious, the fact is that these small mistakes have a snowball effect which complicates reconciling W2s with year-end tax returns.
3. Running payroll late
Things happen and sometimes payroll isn’t processed on time. Not only is this very upsetting to employees and a total morale crusher, but it can also come with penalties and fines. Employers can also get into a sticky situation if they don’t issue a departing employee’s final check on time. Many states require final paychecks to be issued very quickly, sometimes even on the same day that an employee leaves.
4. Using incorrect or outdated employee info
It is common for payroll and HR systems to not be integrated. As such, employers are left to manually enter or transfer data from one system to another. And with more keying comes more errors. Additionally, common issues like incorrect addresses, name changes, or outdated hourly rates can cause problems with the IRS.
5. Miscalculating overtime
Calculating overtime can quickly, and easily, get pretty confusing. Per the Fair Labor Standards Act (FLSA) covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek. Seems simple enough so far, right? Well, employers also need to remember to follow any state or local overtime laws. In states like California there are also rules for daily overtime, as well as rules on double time.
While the above payroll mistakes are common, the good news is that employers don’t have to go it alone! Enlisting the help of a PEO to automate and manage payroll helps ensure employees are always paid on time. Integration between time and labor tracking with payroll and HR eliminates manual processing, avoids keying errors which cause incorrect data, and saves time. PEOs also stay up-to-date on employment regulations and can provide the resources employers need to stay compliant.
For more information on how ScalePEO can help you do payroll right, streamline your HR, and give your employees the benefits they’ve always wanted contact a member of our team today.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal advice. If you have any legal questions regarding this content or related issues, then you should consult with your professional legal advisor.