Common Payroll Mistakes, Consequences and How to Avoid Them

Payroll goes beyond preparing the required payments for employees. If done wrong, it can land a firm in legal trouble, government fines, and even discourage job applicants from approaching your organisation.
However, with the right HR and Payroll Solutions, employee payment and scheduling can be optimized to avoid legal issues while ensuring workers remain happy.

Common Payroll Mistakes, Consequences and How to Avoid Them
Here are some common payroll mistakes your HR team should watch out for;

1. Delayed Payment:

Employees show up to work at the stipulated time indicated in their contracts. The company is expected to reciprocate if they can fulfil their end of the deal.
It is illegal for an employer not to pay workers on payday. There are federal laws against this; likewise, states like California also have laws to protect laborers. 
Payday is considered the next day after the end of an agreed duration of work.
Sometimes, delayed payment is not because workers are not paid but because the payment does not reflect their overtime.
This is a mistake that can and should be avoided.

2. Overpayment:

This mistake is common when calculating payments for employees paid by the hour. Calculating the payment for salaried workers is more straightforward but not free of errors too.
Recovering an overpayment from an employee can be stressful. First, you may spend hours trying to figure out the cause of the miscalculation. 
Next, you will need to inform the employee. Laws in most areas prevent employers from inconveniencing employees during the recovery of an overpayment.
The statute of limitations will also determine whether you are still eligible to claim the overpayment. Employers usually have a maximum of six years to do this.
Since employees can sue for underpayment, you should only try to deduct the overpay from their next salary after informing them and having a mutual agreement.
Such an employee may also cut you an outright check.
To avoid this kind of situation, deploy a system that can be used to track their work hours. They may be instructed to clock in their hours by signing in and out online or on the premises.

3. Underpayment:

Employees usually have a plan for their pay even before payday. That is why any shortage in their expected salary or wages can result in disagreements between them and the management.
One of the common causes of underpayment for salaried workers is the omission of their entitled benefits, such as paid leave and vacation.
It can also happen if the employee’s status is not updated after resumption from an unpaid leave of absence.
Another kind of this error is the failure to include overtime payment. Under the Fair Labour Standards Act (FLSA), workers are entitled to overtime pay at a rate not less than one and one-half times the regular rate of pay after 40 hours of work in a workweek.

4. Misclassifying Employee:

Wrong classification of employees’ contracts can result in overpayment or underpayment.
A common error like this is the misclassification of non-exempt workers as exempt, and this would imply they are not qualified for overtime pay.
An employee can also be mistakenly classified as an independent contractor.
Denying workers their rightful payment, intentionally or unintentionally, is known as wage theft.
An analysis by the Economic Policy Institute reveals that over $3.24 billion in stolen wages were recovered for workers from 2017 to 2020.
Avoid misclassification by double-checking the contract agreement and preparing a separate payroll for each category of employees.
This will save you from being on state agencies’ radar and avoid class action litigation.
It can also boost employees’ trust in the organization, thus, a higher retention rate.

5. Regulatory Compliance:

In a more significant part, the government determines payroll rules and regulations.
Even though it might be challenging considering the volume of information you need to process for the efficient operation of your business, it is essential to always keep abreast of the latest development in labor law.
Failure to do this might subject you to a monetary penalty of up to $1,000 for each violation.
Meanwhile, a second conviction may result in imprisonment.
For instance, the federal government has a pegged minimum wage. Firms must also remit Tax Deducted at Source (TDS) and Professional Taxes (PT). 
Your employees’ data are should also be kept safe. Unfortunately, some companies reluctant to adopt compliant software to store workers’ information risk unauthorized access to their data.
Lastly, never make the mistake of paying employees outside the payroll, regardless of the intent. Salaries and wages are taxable and, therefore, need to reflect in the company’s financial record.


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