- Common Payroll Mistakes
- 7 Tips To Improve Payroll Management Process
In the course of running a successful business, the requirement to improve payroll management process is an essential part as it helps ensure you compensate your employees accurately and on time. Even though there are now many tools that ease the headaches of payroll management. Mistakes, believe it or not, are still quite prevalent, and fixing them unfortunately requires time and sometimes additional costs to the employer.
So, in this article, we’ll cover some of the most common mistakes and discuss seven helpful tips that you can implement to ensure that you improve payroll management process so that it runs each time smoothly. We’ll discuss common payroll mistakes and effective and efficient ways to improve payroll management process. Now let’s dive in.
Common Payroll Mistakes
The truth is that the task to improve payroll management process can be downright daunting, but it has to get done and done right the first time. Let’s take a look at five of the most common payroll errors.
Incorrect worker classification.
The fair labor standards act establishes minimum wage, overtime pay, recordkeeping, and child labor standards that affect both full-time and part-time workers. It also specifies the requirements for paying exempt and non-exempt employees, including the forms of payment employers can include or exclude from the time and one-half pay calculation. The FLSA also carries out rules about how to calculate perks, benefits, and bonuses- plus so much more.
Miscalculating An Employee’s Pay
When it comes down to it, there is a multitude of possible errors to be made when calculating employee pay. In addition to base pay compensation – bonuses, reimbursements, stipends, and sales commissions need to be factored in, as well as garnishments for fines, taxes, and child support – which need to be deducted and adequately dispersed.
It’s also imperative that benefits deductions like health insurance, health savings account(HSA), and flexible savings account(FSA) accounts and pre-tax deductions like commuter costs are accurately withheld.
These days so many people live paycheck to paycheck that miscalculating pay can significantly impact their livelihood in a negative way, not to mention miscalculating pay could lead to IRS penalties particularly if you pay fewer taxes on income than what is really owed. Neither is a desirable result, so it’s best to get the details right!
Missing Pay Deadlines
Missing pay deadlines is a common mistake and when it happens, you can be assured that your employees will not be happy! One way to ensure that you don’t miss a payment deadline is to have a payment schedule in place and a payroll system that sends you reminders.
Whether you pay your employees monthly, semi-monthly, bi-weekly, weekly, or even on-demand, you need to first satisfy state requirements and then determine what’s best for you and your employees.
Neglecting Tax Forms
Tax forms are an important part of your payroll process. While they may seem like a hassle, failing to keep them up to date and remain compliant can create an even bigger hassle since you’ll need to issue payroll corrections that will cost time and money – plus you run the risk of incurring the hefty fine.
Three of the most important forms you’ll need to keep track of are, Form 940, which you’ll use to report the annual Federal Unemployment Tax for the calendar year, Form 941, which you’ll submit quarterly to the IRS so employees know how much income tax, social security tax and medicare tax you’ve withheld from their paychecks, and finally form W4, which employees fill out so that the employer can withhold the correct federal income tax from their wages.
Two additional forms you’ll need to keep track of are, Form W2, which details the amount of compensation you paid out to your employees, and Form 1099, which details the amount you’ve paid to freelancers or independent contractors.
Lastly, if your state collects income tax, be sure to include your state’s withholding documents as well.
No one likes to be audited, but it does happen, and therefore it’s critical that you as an employer maintain proper employee pay records. The FLSA requires that organizations retain payroll records for three years. These include time cards, wage rate tables, work and time schedules – plus many other items.
This may seem like a lot of documentation, but consider that having all of these records updated and on file could potentially prevent your organization from incurring fines down the road.
Now that you’re aware of the most common errors employers make in payroll management, let’s look at the seven helpful tips to improve payroll management process that will ensure a smooth and seamless payroll process for you and your organization.
7 Tips To Improve Payroll Management Process
In order to have an effective and efficient payroll process, you’ll need to create an intentional plan. The seven tips I’m about to share with you will help you develop and maintain that plan. Let’s dive in.
Create A Payroll Process Manual
The first step you need to follow to improve payroll management process is to develop a manual, outlining the detailed steps of your organization’s payroll process. While it may seem like a huge undertaking, this document will serve as a valuable tool when questions arise about payroll-specific topics, plus it’ll benefit new team members when they join your organization.
Everything pertaining to your payroll process will live in one place, removing any second-guessing if and when a problem occurs.
If you need a starting point for your manual, start with the training documentation from your payroll provider. For example, certain payroll providers have a knowledge base with detailed articles about how to run payroll. So, it’s important you choose the right payroll provider for your organization.
It will need to include things like establishing pay periods and ensuring accurate time and PTO(Paid Time Off) counts. You’ll also want to have an offboarding checklist to terminate employees who have left the organization, complete outstanding benefit enrollments, and set up any custom earning and deduction types.
You’ll also want to have an off-boarding checklist for determining employees who have left the organization, completing outstanding benefit enrollments, and setting up any custom earning and deduction types.
Lastly, you’ll need to ensure that employees have completed their direct deposit, W4, and state documents.
Ideally, your payroll provider will have safeguards in place for this. Creating a payroll manual can be time-consuming but with software like GUSTO, it becomes easy because such software outlines each of the processes. In fact, payroll software are effective tools to improve payroll management process.
Classify Workers Correctly
As we discussed earlier, this is one of the most common errors employers make. Whatever payroll process you’re currently using, conduct an audit to ensure that each employee has been classified correctly.
You may want to conduct regular audits and include them in your payroll management manual so they become an integral part of the process, thus adding to your efforts to improve payroll management process in your company.
Classify Pay Correctly
Once you’ve classified your workers correctly, then go ahead and ensure that they are being paid accordingly. Again, you may want to audit your payroll so that you can correct any misclassifications.
Create a Payroll Calendar
When taking the task to improve payroll management process, there are too many important dates to remember like when to submit pay stubs, retirement documents, and tax forms, so creating a payroll calendar will help you and your organization stay on track and hopefully prevent you from missing important deadlines, which could result in hefty fines
Run Payroll In-house Instead of Outsourcing
The debate between running payroll in-house or outsourcing it is an ongoing one, and organizations sometimes struggle with choosing the right option. Outsourcing to payroll management services or financial professionals usually costs more in the long run.
If you want to improve payroll management process to the next level, have more control over it, and ensure that it’s accurate and efficient, then there’s only one option, acquiring an in-house payroll system. Plus, your organization will enjoy cost savings.
Gone are the days of spreadsheets and calculating on paper, which leads us to the next tip
Automate Your Payroll System, Including, Benefits, Time, and PTO
By automating your payroll management system, the potential for error significantly decreases. Use a Human Resource Information System(HRIS) that includes benefits enrollment, time, and paid time off(PTO) tracking so you aren’t entering or combining information from multiple systems into spreadsheets. You simply enter your parameters like your organization’s pay schedule, employee payment preferences, and tax withholdings and the software does the rest.
Consider Earning Your Payroll Certification
Payroll certification refers to the process by which human resources professionals demonstrate their mastery of the knowledge and skills needed to successfully carry out payroll responsibilities.
It’s by no means a requirement for payroll professionals, but it clarifies the role and responsibilities of the payroll management professional which results in a decrease in costly errors, and more consistent compliance and it provides access to a network of payroll professionals who can advise on difficult issues, plus it looks great on a resume, and employers are more likely to hire candidates certified in payroll management, especially when it is required to improve payroll management process.
When a company constantly works to improve payroll management process to make it smooth and flawless, employees also tend to have confidence in their employers and are seen to work with more dedication. Proper payroll management is also one of the decisive factors in managing the organizational budget. Hence, it’s an important factor for overall business growth.