How to Improve Payroll Processing

Payroll errors can result in costly penalties and compliance issues. On top of that, mistakes processing payroll can break apart employee trust, leading to increased turnover. 

Employees worldwide struggle to afford the cost of living. In the US, it’s estimated that 63% of employees are living paycheck to paycheck. Similarly, the UK reports a third of workers in the same situation. In Australia, that number is reported at over 48%

In any market – especially a tight labor market – employers should avoid making any mistakes that can cause employee churn and may drive down the bottom line. 

To improve payroll processing, first we must understand the most common payroll mistakes and how to solve them. Then, you’ll be able to ensure payroll is prepared and processed correctly (the first time). 

5 Common payroll mistakes

There are many common mistakes made when preparing and processing payroll.

1. Overpaying or underpaying employees 

Calculation errors are common in payroll preparation and processing, especially if the work is done manually. 

Depending on the frequency and size of the mistake, this can lead to cash flow problems. 

Correcting these errors, especially overpayments, isn’t simple. Based on where your company operates from, employers may not be allowed to withhold money from an employee’s paycheck to correct a previous overpayment. Even if withholdings are allowed, it adds a correction process to your payroll staff’s task list. 

2. Missing paychecks (especially for recent hires)

Employees, especially new hires, sometimes experience a missed paycheck.

While the timing of a first paycheck depends on the company’s payroll policies, a missed paycheck is a violation of labor laws. 

This kind of mistake can result in fines and possibly even a legal process to reclaim unpaid wages and entitlements. 

3. Making incorrect deductions and withholdings

While deductions are typically voluntary based on an employee’s elections, paycheck withholdings are mandatory and dictated by their government. 

Mistakes in this category can result in employee refunds or increased withholdings from future paychecks, depending on what’s allowed by law. 

This mistake can also include calculating incorrect tax rates, which can cause even more violations.  

4. Misclassifying employees

This type of mistake most commonly happens when employees are classified as contractors rather than employees (or vice versa).

Misclassifications can result in tax issues, both for the company and for the individual employee. With a growing trend of employee communities, correct classification processes should be solidly established into payroll procedures.

5. Missing deadlines

Missing a payroll deadline can lead to costly tax penalties as well as employee dissatisfaction. It can result in legal action and damages. 

How to avoid payroll errors

The key to avoiding payroll errors is integration. By combining your time and attendance data with payroll you can simplify time and attendance processes, reduce data entry time and errors and lower your compliance risk. 

Benefits of integrated payroll processing and preparation

There are many benefits to combining scheduling, time and attendance and payroll systems into one integrated solution. 

Reduced manual work and error

Moving to one system for employee, timekeeping and payroll data can cut payroll processing time by 90%.

How? It’s simple. By reducing the time spent manually matching, adjusting and syncing data from multiple, separate data solutions, payroll professionals gain back hours in their day. With these added resources, your staff is able to redirect efforts to other projects and tasks, increasing productivity and output. 

Complete visibility of payroll-impacting data

By using a software solution that connects even more payroll-impacting data (like scheduling and reporting, for example), you can gain a complete picture of your payroll health, reducing the chance of missed deadlines or processing errors. 

Reduced time theft risk

With integrated data and a single source of truth, payroll staff can process payments knowing that timekeeping activities have been verified by different software features and supervisory steps, without creating extra work on the back-end. 

This helps reduce employee time theft, which can cost companies millions every year.  

Simplifies – and speeds up – payroll activities

Integrated solutions help calm the chaos involved in payroll preparation and processing. 

By establishing detailed, accurate and automated processes, you can maximize payroll effort without creating additional work. Staff can reconcile information and correct any errors or missing punches as they show as exceptions in the system, instead of waiting until the pay period. 

This can even allow room to introduce other employee retention initiatives, like earned wage access integrations, which can be offered to employees without impacting the existing payroll process at all. 

A sophisticated software tool also supports other integrations to help improve payroll preparation, like payroll tax filing services, which can also help you stay on top of wage and overtime changes as they happen. 

Are you ready to fix your payroll? 

Schedule a demo to learn how TEAM Software by WorkWave can help your business streamline and strengthen payroll preparation and processing. 

This article was originally published on August 28, 2018.