Payroll management is a necessary process for every business. However, it requires a tremendous amount of work to pay employees accurately and on time. Whether you’re using payroll software or processing manually, an ineffective solution can create more work for your team.
This article will discuss some common payroll issues that occur and how you can avoid them. Taking these proactive steps will help improve the quality of your payroll process.
Common Payroll Issues
Managing payroll processing is complex, which opens up the possibility for many types of issues to occur. There are many factors to consider, so workers are paid accurately. These factors include ensuring different employee types are compensated correctly and withholding the appropriate amount of deductions from each paycheck.
Human resources and payroll professionals have so much to consider that about 33 percent of employers make payroll errors. Here are some of the most common payroll mistakes made:
1. Miscalculated Overtime
The penalty for miscalculating overtime is 100 percent of overtime pay owed to the employee. Civil penalties are up to $1,000 per violation and any additional state penalties.
Miscalculating overtime wages owed can be a very costly mistake since the Department of Labor (DOL) requires an employee’s overtime rate to equal time and a half of their regular rate of pay.
However, an employee’s classification determines whether they qualify for overtime pay. Non-exempt employees are not exempt from the provisions of the Fair Labor Standards Act (FLSA). Therefore, non-exempt employees are entitled to overtime wages for hours worked in a week greater than 40 hours.
Exempt employees are exempt from the provisions of the FLSA because of how their role is classified. Exempt employees are typically not required to be paid for overtime.
2. Payroll Tax Non-Compliance
Employers are responsible for administering tax forms to employees, such as Form W-2 and 1099s. HR Managers need to stay up-to-date with ever-changing legislation. They also have to keep up with federal, state, and local tax rates and wage requirements. Furthermore, employers need to conduct regular audits of tax information to ensure they’re not paying unnecessary non-compliance fines.
Payroll tax compliance is complicated, overwhelming, and can feel like a full-time job.
In fact, 40 percent of small businesses pay an average of $845 a year in penalties for incorrect or late payroll tax payments.
3. Employee Misclassification
Correctly classifying employees in your payroll system is a critical part of ensuring payroll accuracy. An employee’s classification determines many things:
- Eligibility for certain benefits
- Tax forms they receive
- Wages owed
- Amount of paid time off they’re allowed
- Payroll taxes to be paid by an employer
In some instances, the employers determine employee types based on the term of the role and the hours an employee works. Generally, there are three standard employee classifications:
- Full-Time Employees: These are employees who work an average workweek for an organization. The FLSA has set 40 hours a week before a company is legally required to pay non-exempt employees overtime wages. Therefore, an employer may choose this as the number of hours needed for a full workweek. Full-time employees are entitled to certain benefits as mandated by state and federal laws.
- Part-Time Employees: In general, part-time employees work 30 hours per week or less and may not work a regular schedule. These employees may qualify for some benefits depending on the number of hours they worked during the week.
- Temporary Employees: Also known as contract workers, temporary employees can work either full-time or part-time hours. However, the length for which they work for a business is usually short-term, which is why they are considered “temporary.” Typically, employers misclassify employees as contract workers, which is when legal action is taken.
It’s also important to correctly classify exempt and nonexempt employees. Hourly employees are typically considered non-exempt, while exempt employees are those who hold management-level roles. There are different federal and state regulations for exempt employees, non-exempt employees, and independent contractors. Otherwise, a business could face significant IRS penalties.
Don’t Trust Your Payroll Provider?
How to Improve the Quality of Your Payroll Process With Technology
Paying your employees is a time-consuming, error-prone process. It’s even more so if you’re using payroll technology that requires data flow between multiple systems or still processing manually. With so many factors to consider and issues that can arise, how can you improve the quality of your payroll process?
Partnering with a provider that offers payroll software and tax compliance services can make a significant difference. By automating your payroll process, you can save time, maintain payroll tax compliance, and accurately pay your employees. However, choosing the right payroll partner can be overwhelming. Let’s discuss some factors to consider when choosing the right payroll technology for your needs.
Payroll Automation Workflows
When it comes to payroll technology, you want a solution that automates and streamlines your entire payroll process. Look for a system that has a step-by-step workflow for processing payroll. This approach allows you to ensure employee time, incomes, and deductions are accurate. Furthermore, you can eliminate the tedious and time-consuming task of data entry.
Some payroll solutions even provide built-in automated processes to highlight errors and validation rules so you can proactively correct any issues. This configuration allows you to fix mistakes like potential employee overpayment before payroll is even processed. This type of workflow automation creates a more transparent payroll process. You can reduce your time spent processing payroll from days to hours.
Unified and Secure Database
Your payroll process is only as good as the data you’re using. Pulling data from multiple systems or manually using spreadsheets is time-consuming and prone to errors. Look for a solution that stores employee information in a unified database.
Therefore, the same data you use for employee time tracking is the same data used for payroll processing. This approach ensures that your information is always accurate for more effective payroll processing.
On the flip side, a payroll provider has security protocols in place to protect your employee data, including:
- Using encrypted servers and conducting audits like SOC 1 Type 2 to ensure security controls meet industry standards.
- Hosting servers in trusted data centers that use redundant power and backup generators for minimal disruption in the event of a natural disaster.
- Leveraging strict access controls like role-based configuration and two-factor authentication to ensure only authorized users are accessing data.
A unified payroll system makes information easily accessible to other areas of your business, while security protocols protect data integrity.
Payroll Tax Compliance Partner
Many payroll providers offer tax compliance services. These offerings include the payroll tax compliance department operating as the reporting agent on your behalf. Having access to a team of payroll tax compliance experts is an effective way to improve the quality of your payroll process.
This approach ensures the accuracy and timeliness of payroll tax payments and filings. A payroll tax compliance partner can further reduce your non-compliance risk with automatic tax table updates and help with year-end processing. When you’re not spending time poring over payroll tax guidelines, you can focus on more strategic tasks.
Quality Control for Payroll
Handling payroll is a crucial part of an organization’s processes. Improving the quality of your payroll process starts with having the right payroll software. Automation of pay cycles helps minimize errors to eliminate common issues with overtime and payroll tax non-compliance.
Partnering with a provider that offers payroll tax compliance services will alleviate the burden of keeping up with legislation and tax tables. Using a payroll platform with a unified, secure database allows you to maintain control of your company’s sensitive information. This all-in-one approach ensures that data is always accurate.
Streamlining your payroll process opens the door for playing a more strategic role in your company. You take back valuable hours in your day to be used for budget forecasting, recruiting, and employee engagement. Investing in the quality of your payroll process provides an ROI that impacts your entire organization.
How APS Can Improve Your Payroll Process
APS Payroll has been in the payroll industry for over 25 years. We started in 1996 as a tax compliance and payroll service provider. Since then, we have grown into an all-in-one payroll and HR provider.
Today, we offer everything from core HR services to time and attendance tracking. Our software helps our customers reduce their payroll processing time from days to hours while also providing exceptional customer service and support.
Our mission is to make payroll and HR easier for our customers, and we do so by providing the solutions that our clients need to perform their very best. Most recently, we introduced Manager Self-Service to the APS Mobile App. If you’re interested in APS’ services or want additional information about our platform, contact us at 855.945.7921.
Sources
- A Small Business Guide to Payroll Processing and Reporting
- Help Small Business Payroll Clients Prepare for Tax Season
- Definitions Of Employee Classification
- Independent Contractor (Self-Employed) or Employee?
- Understanding Employee vs. Contractor Designation
- What are Payroll Deductions and When Do They Happen?
