Insights into global expansion & employee retention

Published: June 7, 2022

7 Common Payroll Errors & How to Avoid Them

To run a successful business, you need to have a strong grasp on how to do payroll, along with the system and processes in place. Employees must be paid, government forms filled and taxes submitted—all in a timely and accurate manner.
7 common Payroll Errors

Even for a well-oiled organization, that’s a whole lot to juggle. And with so many global HR factors to account for, it becomes all too easy to make small mistakes that can add up in a big way. 

That’s why you’ll want to get ahead of payroll errors before they happen. Below you’ll find seven of the most common payroll conundrums and a detailed road map to help you avoid them. 

Payroll Error #1: Misclassified Employees 

Before an employee ever joins the payroll, you’ll need to classify their work relationship. This determination can have a major impact on what payroll documents and expenses you’ll be expected to submit. 

According to the Economic Policy Institute, this problem is incredibly commonplace: “The U.S. The Department of Labor found that between 10% and 30% of audited employers misclassified some workers and that up to 95% of workers who said they were misclassified as independent contractors were reclassified as employees following review.” 

While some businesses make the honest mistake of misclassifying employees as independent contractors, many others do it purposefully to avoid paying:

  • Employee benefits
  • Taxes
  • Worker’s compensation

In either case, misclassifying workers can deprive them of their rights and protections. Doing so might not only impact employee satisfaction and retention but also expose the company—especially an international company—to significant payroll penalties. 

For example, in California, Labor Code section 226.8 states that the willful misclassification of individuals as independent contractors may result in a civil penalty between $5,000 and $25,000. 

Payroll Error #2: Incorrect Tax Forms 

Whenever you fill out payroll tax forms, they must be accurate. 

And yet, quite often they’re not. In fact, as All Business notes, this is such a rampant issue that the Social Security Administration has established a specific verification phone number just to ensure that the names and social security numbers on tax forms match. 

Incorrect tax forms may be the result of human error or poor record keeping and payroll data entry practices. Regardless, when tax forms are inaccurate, it can result in significant company losses and government-imposed penalties. 

Be sure to triple-check the information included on your company’s tax forms. Reviewing them from bottom to top—instead of top to bottom—could help you catch any stray errors. 

Payroll Error #3: Missed Deadlines

Similarly, payroll must be submitted on time. As we’ve discussed previously, payroll costs may include: 

  • Compensation
  • Benefits
  • Withholding taxes
  • Payroll taxes 
  • Severance

Failure to promptly report and deposit taxes and documents to the proper state and federal agencies could result in penalties, fines and interest charges.  

To ensure your payroll is submitted on time, add the due date as an event to your work calendar. Use event reminder notifications or automated payroll processes to give you a helpful nudge in advance. 

Payroll Error #4: Failure to Send Out 1099s

Do you have independent contractors? Do they receive more than $600 annually?

If you answered yes, they’ll need to receive a 1099 form by January 31st of the next year. 

So, in addition to misclassifying employees, many companies also forget to send out these documents until it’s too late. That mistake can end up negatively impacting the independent contractor’s ability to pay their taxes on time. Should that occur, they may decline to continue the business relationship. 

Again, make use of your calendar notifications so that you can stay on top of important deadlines. 

Payroll Error #5: Pay Miscalculations 

Pay miscalculations can occur whether an employee is salaried or working on an hourly basis. Common problems include: 

  • Underpaying employees
  • Overpaying employees
  • Missing the first check for a new hire
  • Deducting wrong amounts 
  • Improperly paying employees on disability or leave 

There are very few mistakes an employer can make that will sour its relationship as quickly as underpaying them or forgetting to pay their workers entirely. This type of common payroll services mistake doesn’t just impact employee satisfaction, it can also cost the business resources and time to investigate and correct the error. 

Similarly, if you ask workers to go beyond a 40-hour week, it’s advisable (if not legally required) to provide overtime pay. Failure to properly compensate employees for overtime or other performance bonuses will at least result in employee dissatisfaction, but it could also potentially expose your business to worker liability suits. 

That said, mistakes happen. In case of a miscalculation, re-establish trust with your employees by making the correction as soon as possible. Consider automating your payroll system to avoid recurring errors due to manual entry. 

Payroll Error #6: Misfiling Gross and Net Payroll

This is a simple mistake to make—and easily avoidable at that—but it can be costly. 

Just remember that gross income is the total amount an employee is owed prior to deductions, subtractions, taxes and various other contributions being withheld. 

Payroll Error #7: Not Staying Up to Date with Rules and Regulations

In addition to the Fair Labors Standards Act, there are various acts and bills that govern employment—and those laws are constantly subject to change. As a result, employers that fail to stay up to date with regulatory rules may quickly fall out of compliance, thus impacting their ability to legally operate. 

For international companies, this represents a special challenge, seeing as each country you operate in likely has different laws you must know and comply with. 

Avoiding Common Payroll Errors with Playroll 

Even the most minor payroll error can create a ripple effect that can jeopardize the health of your business. Keep these common concerns top of mind as you plan out the best ways to optimize your payroll records. 

Or, you can simplify your payroll management systems with Playroll. 

Playroll offers a payroll solution that international teams can leverage to keep payroll accurate, no matter where you operate. Equipped with our powerful platform, you can proactively avoid common payroll mistakes while automatically detecting those that you may have committed.

Aside from payroll, we also have employer of record services. Want to see how Playroll can make a difference?  Join us for a demo today and experience it for yourself. 

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