What are the most common payroll mistakes?
When a new company approaches us with interest in our payroll solution software, what typically happens first is a long conversation about the challenges and mistakes they make when processing payroll manually. Here are the five most common payroll mistakes that we see companies dealing with when they don't have a payroll solution.
Improper Employee Classification
As many employers are aware, there are many different types of employees: freelancers, consultants, part-time, full-time, exempt & non-exempt. Chances are you have more than one type of employee working for you, and employee compensation gets reported to the IRS differently depending on how each employee is classified. Employee misclassification and incorrectly reporting tax information can carry penalties, bring lawsuits, and trigger audits.
When it comes to employee classification, it's vital that employers understand the rules and how to properly classify employees.
Missing Tax Deadlines and Payments
Most companies are required to deposit taxes on a monthly or semi-weekly basis depending on the total taxes reported during a four-quarter lookback period. When taxes reach certain amounts, they must be deposited the next business day. You must stay on the schedule determined by your deposit calendar or run the risk of incurring penalties.
Wage Garnishment Errors
Garnishments are defined by the US Department of Labor (DOL) as "a legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of a debt such as child support". Several mistakes can lead to misprocessing garnishments including:
- Not taking Action on Garnishments
- Failing to Respond Correctly
- Firing an Employee with Debt
Companies are liable for all court orders and can be sued for garnishments of their employees if not processed correctly. It's important for companies to research Wage Garnishments and the Consumer Credit Protection Act (CCPA) which protects an employee's rights regarding garnishments. The garnishment process can be difficult to understand and differs depending on the state. Turning to a Garnishment Service Provider, like TruPay's Garnishment Services, can ensure your company is in compliance with garnishment orders.
Payroll Processing and Calculation Errors
Payroll involves lots of calculations and lots of opportunities for errors. The most frequent calculation errors companies make are Hour Tracking and Overtime. Many common practices contributing to these errors include:
- Calculating overtime over a two-week period instead of 40 hour period
- Missed or double-counted time punches
- Outdated systems and handwritten time tracking
- Lack of understanding of current wage law requirements & rules
Properly training your employees on time tracking, regarding mandated breaks, overtime, time rounding & missed punches can go a long way to helping solve these problems. Create protocols & systems to catch common mistakes. Automate your time-tracking system and create company parameters and guidelines. However, the surest way to avoid simple processing mistakes is with a modern payroll solution as well as a time and labor management solution. Through modern HCM solutions, all your employee data is stored in one place, making avoiding payroll errors a much easier task.
Undelivered Tax Forms and Paperwork
Forgetting to send proper tax forms and paperwork required by law could lead to high penalties. A common tax form that employers5erty overlook for contract & independent workers is a 1099 form. Any vendor or independent contractor who provides your company with more than $600 in services must receive a 1099 from you by January 31st of the following year.
How to Avoid the Most Common Payroll Mistakes Entirely
The most common reason we see businesses make these mistakes over and over again while processing payroll, is they are simply trying to do too much themselves in the interest of saving a few bucks. Small business owners who try to deal with payroll matters on their own tend to experience more stress and may make costly errors. At the end of the day, the money businesses think they are saving by processing payroll themselves is being negated by the errors they are bound to make, and the time they are locked into spending on payroll processing and fixing said mistakes.
These 5 mistakes, plus many others, can be avoided by enlisting the services of a professional payroll firm.
To learn more about how TruPay is already helping countless businesses with their payroll processing, contact us today.