9 Most Common Payroll Mistakes and Ways to Avoid Them

You may be hard-pressed to remember all the different withholding, payment and filing procedures. Consider using checklists (or flowcharts) and calendars to keep you on track. For instance, IRS late-deposit penalties range from 2 percent to 15 percent, depending on when you make the deposit. With these and other considerations in mind, it’s essential you stay up to date on national and state-related requirements around wage deductions and payroll. Federal Unemployment TaxesThis is a tax based on the gross pay of employees, documented on Form 940. Overtime, benefits, vacation pay, travel reimbursements and bonuses are all protected.

As a result, the consequences of these errors accumulate gradually before shocking your company. As the most common tax form for U.S. businesses, the W-2 is also the form most likely to have mistakes on it. Filing W-2s on time and with the right departments is important, but it’s also essential to make sure the information is correct. It’s important to verify employee information with new hires to avoid mistakes on W-2s.

The Gig Economy is Affecting Compliance

The most important thing to remember when it comes to payroll mistakes is understanding that they are going to happen. You’re human and cannot avoid making mistakes, but you can set yourself up for better success with the tips below. A payroll mistake can refer to any error that occurs when processing your employee payroll.

A technical breakdown may cause payroll delays, or the individual in charge may simply be too busy. Due to the lack of a dedicated payroll professional, the business owner may be forced to pay employees late. You should also retain a list of all new employees, all pay changes, all deduction changes, and other updates in one place, sorted by pay period. Then, while you’re working on the payroll for that time, you may go over each list to confirm that all of the adjustments were properly entered into your system. Typically, small businesses hire independent contractors since their work is usually temporary. If you’ve underpaid an employee, they have two years to find the mistake and ask for you to correct it based on the Department of Labor’s statute of limitations.

Regular errors

Part of your duties as an employer is keeping records of important documents. But failing to keep in-depth payroll records is a mistake some business owners make around the world. And, not doing so can certainly bite you in the butt come tax time or during an audit. Fortunately, payroll software tools can help navigate a lot of these nuances for you.

• With a process as complex as payroll, there are numerous places where organizations can make payroll mistakes.
• Take care to carefully track and determine overtime eligibility, as a mistake in this category can prove to be a huge error for you and your employee.
• Late fines, penalties, and even legal difficulties may cost your firm a lot of money if you miss a tax deadline.
• Not to mention, this issue is larger than employee dissatisfaction; underpaying an employee, even accidentally, can lead to unpleasant legal issues.
• Making sure tax rates are in order will help you avoid owing taxes or making a payroll correction.

If you overpay an employee, you have the right to recover the amount but states may have specific rules for doing so. If you underpay, you’ll also need to follow the requirements for your state. For example, in Oregon, you can wait until the next pay period to correct the mistake if the amount is less than 5% of the total paycheck. A best practice is to use a payroll software or provider for accurate calculations.

Using the incorrect payroll frequency

Pull historical data from Wrike’s calendars to cross-check data entry. Color coding makes them easier to understand at a glance and is especially helpful for teams managing multiple types of billing structures, including milestone billing. Of course, the right solution depends on your needs and available resources, so take the time to consider your options and how they might benefit your business.

If this is the case for your business, you’ll have to spend extra time educating yourself on payroll requirements to ensure compliance. For example, if you’re paying a mileage expense for employees based on IRS guidelines, verify the correct amount with the IRS. You’ll also need to dedicate time to verifying that the forms you’re filing for all payroll and tax purposes are the most recent version. If you are using an outdated version, it may get rejected and delay processing time. Many common revenue recognition principles come down to the person processing payroll not having enough information or rushing through it. If you are running out of time to process payroll and find yourself in a rush, you’re bound to have more errors.

Wave Payroll Review

Its payroll provider is said to have made 10,806 errors, affecting 5,529 people. Thus, a standardized and automated payroll software is necessary for tackling these challenges and avoiding payroll mistakes for future-ready workplaces. The pandemic has given rise to a new set of challenges for payroll processing. These make timekeeping and leave management complex, which are crucial inputs for payroll calculations. When any payroll error occurs, the first thing you do is get it corrected. The employee file, you would want to see, may have been lost or misplaced by then.

Even if you’re not in the know, you’re still responsible for paying the correct amounts at each government level. Some payroll apps can acquire this information for you after entering your city and state into the system. This also means it’s up to you to assign and track hours for paid or unpaid vacations and any holiday pay you choose to reward your staff with. You may not reward all your employees the same way, and workers will take vacation at different times of the year. It becomes easy to overlook paid leave or incorrectly accrue paid time off.

How can I avoid payroll errors?

While the rules in each state vary on stopping child support garnishments, it’s best to keep withholding until you receive written authorization regardless of what an employee may tell you. In this article, we’ll discuss the most commonly made payroll mistakes, the effect they can have on your company, and strategies to limit the likelihood of errors. After reading this, you’ll know the best way to protect your business to lower your risk, enhance compliance, and boost morale. Small payroll mistakes may add up over time, resulting in strained relationships with employees, financial losses, and damage to the company’s good brand and reputation. In the worst-case situation, the IRS may become involved and charge fines against your organization. Employee overtime isn’t always as straightforward as getting paid “time-and-a-half” for every hour worked over 40 in a given week.