Top 4 Most Common Payroll Mistakes

Peter Bellotti, Director of Sales, Head of U.S. Office, Mitrefinch

It should be evident that payroll errors and inaccuracies can cost businesses in several different ways. Below are the most common payroll mistakes and a proposed solution for how you can avoid these pitfalls.

1.Reliance on Paper Based Systems for Employee Attendance

The digitalization of the workplace is a reality that all businesses would do well to accept. While some businesses might have grown comfortable with more traditional, paper-based systems, these systems are prone to a number of human errors and blatant employee misconduct. Stacks of employee time cards, to name just one example, can easily be misplaced or lost, and buddy punching practices are just one type of employee time fraud that can cost businesses thousands of dollars.

Investing in employee time and attendance software systems can streamline and modernize your payroll management, help to avoid time fraud practices, and also minimize the risk of payroll mistakes.

2.Misclassification of Employees

Another common payroll mistake is the misclassification of employees. There are dozens of potentially confusing employee classifications, including exempt or non-exempt, one-time contractor or part-time employee, etc. While these classifications are certainly necessary to differentiate employee salary and benefits, there are often gray areas where certain employees might fall. The IRS does audit on the base of these employee categories, and if you have misclassified certain employees, this can lead to costly penalties. To avoid this, it is essential that you stay on top of all employee classifications, including changes such as the recently passed overtime laws. If these classifications are too hard for you to understand and comply with, you might consider hiring an expert to help you correctly classify your workforce.

3.Over Scheduling or Under Scheduling

There is nothing more frustrating for a business owner than seeing employees standing around without any meaningful work to do. That is, until you consider the stress of having an absurd amount of work and not enough employees on hand to get the work done in a timely manner. Over scheduling and under scheduling don’t only cause anxiety for business owners, but can also negatively affect employee satisfaction, productivity, and cash flows. Fortunately, there are several workforce management software options that rely on machine learning and artificial intelligence (AI) to help you best determine the optimum amount of employees during different business periods.

4.Record Keeping Errors

Even if your business has an efficient and effective payroll system in place, one wrong number can lead to a host of costly problems down the road. One of the most common payroll errors is mismatching the names of your employees with their respective social security number. In fact the Social Security Administration (SSA) actually has a verification number that businesses can call to avoid this common pitfall. Again, digitalization of payroll and employee attendance systems can help to avoid the potential tax penalties that can come with mistyping one number.

These four common payroll mistakes affect tens of thousands of businesses around the country and are most likely responsible for millions of dollars in costs and business losses. Tax penalties, accountant fees, and lost productivity due to payroll errors can all be avoided through making the decision to digitalize your business and payroll practices.