When you manage payroll in-house, through an automated process or manual, you may not be aware of the financial loss resulting from errors with this system. Not only can the incorrect calculation result in over or underpaying employees, resulting in dissatisfaction, but it may lead to liabilities. It may put the business at risk. The risk lowers when you prefer to hire Payroll services.
Reports say that companies lost millions of dollars due to civil penalties because they did not calculate employee remunerations accurately. Since companies are supposed to deposit tax liability to the government, incorrect tax calculation may result in non-compliance.
Hence, it is highly important to have an error-free payroll process. It builds the credibility the company.
Why such issues occur?
Are you still using an age-old typewriter for office communication? Or using fax instead of email? No, it is not possible to do that in the technically advanced world.
Why use a legacy system for payroll calculation then? If you are using pen and paper for employee time record-keeping, then you must be leaking money. Not only that, but you are also probably exposed to legal non-compliance and penalties.
In the world of technology, you should not be a laggard. Manual payroll processing is error-prone. And when they happen, the cost you have to pay is big.
What are the common payroll problems and how to get rid of them? The blog talks about some prominent payroll accounting problems and solutions.
Misclassification of employees
Errors happen when you misclassify employees. It is the most common reason for payroll mistakes. You misclassify non-exempt employees or misclassify independent contractors. Both employees and contractors are affected due to that. Workers do not get proper overtime and contractors do not get minimum wages.
Misinterpreting the rules of the employment relationship is the reason behind payroll error.
Not checking timecards properly
In the hurry to meeting the deadlines for payroll processing, employers miss the mistakes in timecards. Due to incorrect timesheet, calculations go wrong. Sometimes, employees get overpaid, and sometimes, they do not get the wages that they are supposed to get.
Both situations are problematic. In one case, the company suffers a loss, and in others, employees lose trust in the company. You ask tips for payroll Management to payroll system specialists, then checking the timecard will always be underlined by them.
Errors in travel bill settlements
When the travel bill settlement process is integrated with payroll, it tarnishes the image of the company. It is because the travel bill calculation process has various elements that are subjective in nature.
Due to interpretation errors, the calculation goes wrong, and employees perceive it as a payroll error because they get the money paid along with their monthly salary.
It is the reason; many companies keep a separate system for leave and travel bill processing. It ensures the error-free payroll process.
What could be the errors in payroll?
It is immaterial whether you own a big company or a small business, you always want to manage payroll without errors and with high efficiency. You do not want to waste the valuable time of your HR team in checking and cross-checking employee timesheet. Sometimes, these errors might get undiscovered and cost more in the future.
Errors in the payroll calculations could be not because of carelessness only. Sometimes, errors occur due to the high volume of payroll data.
Errors in the calculation of leave and compensation are also common. Here are some commonly occurring payroll problems and solutions.
Miscalculation of wages and overtime
It is one of the commonly occurring errors in payroll calculation. You have to take a close look at the overtime wages. Especially, overtime wages calculation is different from regular wages. Hence, there is always a possibility of errors.
When overtime rates are incorrectly configured, they result in incorrect remuneration and eventually cause high employee dissatisfaction.
It is easy to fix this error. When you track work hours of an employee through the automated payroll processing system, all hours including overtime are recorded and collected on timesheets. It makes the calculation of hours simple. A payroll management system has an ‘all-in-one’ platform that unifies time tracking and payroll processing.
Since all modules are interconnected and interdependent, there is no possibility of missing out on anything.
Missing payroll deadlines
In the payroll processing, deadlines are most important. There could be severe implications of missing payroll calculation dates.
Government authorities have a due date for tax deposits. If the due date misses, then there are penalties and disciplinary action. If there are problems in the payroll calculation, organizations fail to submit the tax timely.
Sometimes, errors happen in the amount of calculation while filing the tax. If the amount is incorrect, then the debit or credit note has to be raised by the government. It is a tedious and long process. Therefore, the accounts department should check the figures before sending them. The best way is to build control-total checks and verification of totals.
Delayed payroll not only distorts your company’s image, but it could result in penalties and interest charges because of late submission of taxes.
The best way to avoid it is by maintaining automated payroll solutions. Processes should get triggered automatically ahead one day of the schedule so there is no possibility of any delay.
Reducing human intervention is the key to inculcate accuracy in the system.
Incorrect records and poor data entry
It is more prevalent in systems that get converted into the digital system from a legacy system. Since the old system does not have any data entry and accuracy checks in place, the erroneous data gets loaded in the new system.
It could cost financial loss to the company and also attract penalties.
To avoid this, there has to be a stringent check and exception checking system built into the system. Legacy data loading should not be done without a sanity check.
Data integrity rules need to be in-built the system. The more precisely you enter data, the lesser are the errors.
You should never disclose employee information to anyone except government agencies that have the authority to know about it. If there is a lack of data security and some data leakage, then your company will have to face serious problems.
By neglecting security issues, the sensitive information of the company is at risk. Also, it slows down operations. Companies are vulnerable to cyber-attacks, which could endanger data. Whether it is because of error or deliberate attempt, data breaches should be stopped at any cost.
The solution is simple. Implement a safe and secure employee payroll processing system that stores sensitive employee data records safely and store them internally or on the cloud where only admin has access. It removes the possibility of getting data lost or misplaced.
Also, there has to be an incident response and crisis management system in place. When companies respond to the breach fast and contain the damage, it reduces the cost of a breach up to a great extent.
The worst scenario is when the payroll processing gets delayed due to missing data. Employees wait for their salaries and the government agency’s demand for tax submission.
It happens when payroll processing becomes person-dependent instead of system-dependent. When the person responsible for data entry misses something, the whole organization has to suffer.
Keeping data on a private computer and depending on it for monthly payroll processing is disastrous. Always have a centralized payroll data entry and processing system to avoid dependency. Also, build every processing logic in the system. Do not keep any addons.
Not having a backup policy
Data in the payroll processing system extremely valuable. When there is no backup policy in place, there could be a possibility of data loss. Sometimes, it is an irrecoverable loss.
When the system gets down for any reason, you do not have any other source to run the operations smoothly. It is one of the commonest errors in payroll processing.
How to overcome it? The best thing is to form and implement a backup system. At any time, there should not be any data loss. It is possible by taking periodic incremental and full backup and keeping it in a secure place.
Missing employee incentive in the calculation
Organizations have to work hard to make sure that there is no tax non-compliance. Hence, they are extra cautious while calculating incentives and perks. However, some companies do not realize that the incentive, compensation, awards, or prizes are part of employee income.
Hence, these elements do not become part of the salary calculation grid. It results in errors in salary calculation and tax deduction. If it gets scrutinized by the tax authorities, then the result is serious. Tax authorities may impose big financial penalties.
Implications of payroll errors
First is your employees lose trust because of incorrect or delayed payment. The credibility of an organization gets established only when people receive their salaries timely. When it does not happen, employees get dissatisfied, which reflects in their engagement and productivity.
Employees leave the organization when their dissatisfaction level cross threshold mark. It happens if there are repeated incidents of payroll mishaps. As a result, the HR team has to get involved in the costly process of recruiting, interviewing, and training new employees. Higher turnover leads to higher than expected costs. The ultimate impact is on the bottom lines.
Avoid common payroll problems by putting the proper system in place. It helps in building the rapport and reputation of the organization. Payroll outsourcing in India has become popular because of its high quality of work and accuracy. Compare various payroll processing solutions before you assign the responsibility to an expert service provider.