Avoid Common Payroll Mistakes (and Losing Your Employees)

One of the very preventable factors that causes employees to leave their jobs is payroll mistakes.  A new survey conducted by the Workforce Institute at Kronos Incorporated found that almost half of the American workforce will start looking for another job after experiencing just two errors in their paychecks.  Not receiving their paycheck when they expect to, receiving less money than they are supposed to, or having to deal with the confusion of tax mistakes can greatly affect an employee’s sense of security and engagement on the job.  The survey also found that it’s quite common for employers to make payroll mistakes, with 82 million Americans affected by payroll problems.  To keep your employees, employers should avoid these common payroll mistakes:

1)  Using the Wrong Employee Classifications

In today’s gig economy there are more and more independent contractors, freelancers, and temporary workers.  It’s common for employers to make payroll mistakes regarding which employees can be exempt since laws and regulations have changed in recent years.  To avoid tax penalties, thoroughly evaluate federal, state and local tax laws so you are aware of the difference between a full-time employee, part-time employee and contract worker.

Another one of the common payroll mistakes made by employers is forgetting to send 1099s to their contract workers, or sending them late.  Be aware that any contract employee that receives more than $600 in a year must be sent a 1099 by their employer.  Contract employees should receive these documents by January 31 of the next year.

2)  Relying too Much on Humans or Technology

There will always be a chance for error with any forms that are filled out or calculations that are made by your payroll staff.  But while automation solves this problem to an extent, it’s also important for employers to avoid relying completely and wholeheartedly on payroll software.  One of the most common payroll mistakes employers make is failing to give software programs the correct or adequate amount of information to process payroll.

3)  Not Keeping Appropriate Payroll Records

To avoid payroll mistakes, you should hold any checks, time sheets, W-2s, 1099s and other payroll paperwork for 4 to 6 years.  Have a failsafe system in place for keeping payroll records.  If you aren’t keeping proper records, your business is more likely to be audited and penalized, not to mention the extra headaches you will endure if you need to find past payroll information for any reason.

4)  Submitting payroll information late

Missing payroll deadlines is one of the common payroll mistakes that will have your employees disgruntled and the IRS throwing penalties at you.  Keep a calendar of when payroll needs to be submitted for employees to receive it on time, as well as IRS due dates for payroll taxes.

5)  Overtime miscalculations

This can be a result of misclassifying employees, since non-exempt employees are entitled to overtime if they work more than 40 hours per week.   If you fail to give these employees the proper classification, their overtime pay can be stalled or distributed incorrectly.  Also, you could run into legal trouble with the Department of Labor.

6)  Making mistakes with employee details

Avoid common payroll mistakes by making sure your employee records are accurate and current.  This includes information such as their address, date of birth, hourly rate, and tax numbers. Double check information that you enter, and update any changes in employee information as soon as they happen.