Having smooth payroll processes in the foundation of smooth people operations. As much as your team likely enjoys their roles, it’s the regular paychecks that keep them coming back to work every day.
Conversely, if your payroll processes have errors or inefficiencies, it can wreak havoc on employee morale. Your employees will never know if the next paycheck will be on time and accurate. At startups where lean teams are tasked with throwing payroll on their to-do list, it’s all-too common for critical errors to be made.
In this post, we’ll cover:
- What are Some Common Payroll Mistakes?
- How to Avoid Common Payroll Mistakes
- Outsourcing Payroll to Mitigate Payroll Risk
What are Some Common Payroll Mistakes?
There are several mistakes that are commonly made with inexperienced or overworked teams tackle payroll.
- Misclassifying Employees: Tax laws and benefits contributions are generally different for independent contractors than they are for traditional, in-house employees. If an employee is classified incorrectly, it could cause inaccurate contributions towards benefits and taxes. These types of errors can cause significant headaches for both the employee and the employer as they attempt payroll corrections post-processing.
- Failing to Send Tax Forms: Sending out your W-2 and 1099 forms as early as possible after the start of the calendar year can go a long way towards making tax season easier on your employees. On the other hand, if it’s late January and your employees have not receive all the forms they need to complete their taxes, they may be left feeling frustrated and anxious. Remember, many of your employees may be expecting significant returns. If you fail to send out tax forms in a timely matter, you’ll be delaying that refund.
- Failing to Keep Complete Records: The Fair Labor Standards Act (FLSA) requires that employers keep three year’s worth of payroll records. The law requires that these records include number of hours worked, pay rates, payroll processing dates, and other key information. In order to protect your company from potential fines and lawsuits, be sure that your payroll recordkeeping practices are functioning properly. Also, be sure to check the local payroll recordkeeping laws where your business is headquartered. Some states require that records be kept for over three years.
- Missing Key Payroll Deadlines: Processing payroll is a highly time-sensitive matter and issues with updating entries, working with banks, and more, can cause unexpected delays. Processing payroll just one day late could cause extreme financial issues for your employees, especially for those who are living paycheck to paycheck. Many startups believe they have a concrete plan for ensuring payroll is processed on time each cycle, but they often aren’t prepared for unexpected or irregular issues that come up.
- Failing to Accurately Calculate Pay: The final common payroll mistake that we’ll address in this post is perhaps the most significant. Accurately calculating payroll is more complicated than simply multiplying an employee’s hourly rate by the number of hours they worked. When you factor in overtime, commissions, deductions, and PTO, calculating the gross pay for an employee suddenly becomes very complicated. Nothing will make your employees lose confidence in your company faster than receiving an inaccurate paycheck. Work with your whomever on your team is tasked with payroll to make sure all payroll systems and data entered are up to date. As we’ll discuss later in this post, you may even consider outsourcing your payroll to ensure accurate calculations and timely deposits.
How to Avoid Common Payroll Mistakes
There are a few steps that you can take to avoid making the common payroll mistakes we covered in the previous section:
- Keep a simple checklist of payroll processes. Even though your payroll process should be largely automated with technology, you should still have a detailed checklist that you can use to make sure payroll is processed accurately each cycle.
- Consider running certain reports prior to payroll processing. Running reports like a deductions summary, payroll register, and cash requirement is a great strategy to catch any preexisting errors before they pollute the payroll cycle.
- Don’t hold back when it comes to investing in payroll tools. Consult with your HR staff to determine if your payroll systems and technology are modern or out of date. Implementing the right Human Resources Information System (HRIS) for your business can easily make the difference between successful and unsuccessful payroll processing.
- Make sure you fully understand what payroll is, especially if you don’t outsource your payroll. As a business leader, you should fully understand the payroll process from start to finish. If you can’t walk through the entire process in detail, don’t be surprised if you experience a payroll error sooner rather than later.
Outsourcing Payroll to Mitigate Payroll Risk
In order to avoid making costly payroll mistakes, consider outsourcing your payroll to an expert third party provider. Outsourced payroll providers are experts in all things payroll-related.
As a business owner, you constantly must worry about all aspects of your business. Marketing, finance, accounting, growth, investments, recruiting, onboarding, acquisitions, mergers, etc…the list could go on and on. Why add payroll—which is such a complex and crucially important task—to that list? Outsource your payroll so that you can focus on what matters most – growing your business! Hand off your payroll to a professional with years of experience avoiding and mitigating payroll risk.
Launchways is your trusted payroll partner. Get in touch with us about our payroll solutions today.
Some of the most common payroll mistakes are:
- Misclassifying employees.
- Failing to send tax forms.
- Failing to keep complete records.
- Missing key payroll deadlines.
- Failing to accurately calculate pay.
To avoid these mistakes, consider doing the following:
- Keep a simple checklist of payroll processes.
- Run certain reports prior to payroll processing.
- Don’t hold back when it comes to investing in payroll tools.
- Make sure you fully understand what payroll is, especially if you don’t outsource your payroll.
- Consider outsourcing your payroll to an expert payroll services provider.