Payroll processing is a critical function for any business, but it comes with many challenges. Inaccurate salaries caused by payroll processing mistakes can lead to employee dissatisfaction and, in worst-case scenarios, legal issues, and huge financial losses for the business.
This article will explore some of the most common payroll mistakes and discuss how businesses can avoid them, as well as features within the Fareclock platform that can help.
1. Incorrect employee classifications
Misclassifying employees as independent contractors when they should be classified as full-time employees carries significant legal and financial risks. Such errors may lead to scenarios where your business becomes liable for substantial back taxes and penalties imposed by the IRS and potential wage and hour violations.
To avoid these consequences, businesses should meticulously review each worker’s role and responsibilities to accurately determine their employment status. Consulting the IRS’s guidelines for worker classification and seeking legal counsel when you’re uncertain can help ensure compliance as well.
2. Failure to track work hours correctly
Inaccurate time tracking can lead to significant payroll errors, including incorrect overtime calculations, missed meal breaks, and potential disputes with employees. Common pitfalls include “buddy punching” (employees clocking in/out for each other), rounding errors, and failing to accurately track and pay overtime hours.
These risks can be managed through Fareclock’s features like geo-mapping and facial recognition for enhanced accuracy. It also pays to educate employees on the importance of accurate time tracking and conduct regular audits of timecards to ensure they maintain data integrity and remain compliant.
3. Data entry errors
Manual data entry in payroll processing is inherently susceptible to human error, potentially resulting in incorrect paychecks, tax withholdings, and other critical issues. To reduce the chances of error, businesses should leverage Fareclock’s automated payroll data entry feature.
Check out How to Setup Salary Calculation using Fareclock.
Seamlessly integrating Fareclock as your business’ attendance and payroll systems will streamline data transfer and minimize manual intervention. In addition, implementing regular data checks and quality control measures can help identify and correct any errors that may have occurred.
4. Incorrect tax deductions
Miscalculating or failing to withhold taxes properly can lead to serious issues, such as penalties, interest fees, and unhappy employees. These errors arise from incorrect withholding allowances claimed by employees, failure to keep pace with ever-changing tax laws, and inaccuracies in calculating state and local taxes.
Fortunately, your business can avoid these errors by using a payroll software with built-in tax tables for accurate calculations. Regularly reviewing and updating payroll procedures to reflect the latest tax legislation and conducting periodic audits of payroll tax calculations greatly help maintain compliance.
Console Preview: Set up Statutory Deductions on Settings > Payroll
5. Failure to account for absenteeism and paid time off (PTO)
If employee absences such as sick days, vacations, and PTO, aren’t tracked accurately, it can cause payroll mistakes and compliance issues. Fareclock helps address this issue by allowing employees to easily submit and track their leave requests. With time-tracking softwares like Fareclock, all records of absences and other PTOs are always precise. This, in turn, helps ensure accurate payroll deductions and adherence to labor laws.
Learn to set-up Fareclock’s Time Off features – from submitting leave entries on the mobile app to managing approvals for holidays, vacations, and more on the console in this Youtube video.
6. Noncompliance with state and local payroll tax obligations
Noncompliance with state and local payroll tax laws can lead to hefty fines and penalties. Utilizing payroll software with built-in tax tables can help automate tax calculations and minimize the risk of errors. Consulting with a qualified tax professional can also provide valuable guidance on compliance with all applicable tax laws and regulations.
Labor laws and tax regulations are constantly evolving, and failing to stay informed about these changes can result in noncompliance and costly penalties. To ensure ongoing compliance, you should proactively monitor changes in federal, state, and local laws and regulations by utilizing resources such as the Department of Labor website and industry publications.
7. Miscalculation of final paychecks
Another common cause of salary-related disputes and legal issues is erroneous calculation of paychecks. Common errors include incorrectly calculating accrued vacation time, missing deductions or payments, and inaccurately calculating severance pay for those who’ve left the company. To avoid these issues, conduct thorough reviews of all relevant employee information before issuing final paychecks. Using checklists to cover all necessary steps and consulting with an employment lawyer can help maintain compliance with all applicable laws and regulations.
8. Disregard for employee questions and concerns
Ignoring employee questions and concerns regarding their paychecks can lead to frustration, dissatisfaction, and even legal action. Prevent this by establishing clear communication channels, such as employee hotlines or dedicated email addresses, for employees to inquire about their paychecks. Prompt and professional responses to employee inquiries are crucial, and so is providing clear and concise explanations of payroll deductions and other related issues.
Experience the peace of mind that comes with accurate and efficient payroll processing from Fareclock. Request a trial session today.
