Health savings accounts (HSAs) can come in handy for employees who anticipate regular medical expenses or even those saving for operations like LASIK. When these plans are miscalculated, however, businesses lose 130 hours correcting them. When it doesn’t happen correctly, payroll pros can expect hours of trying to make things right. Specifically, EY counted an average of 257 hours for companies to address erroneous expenses. So what do payroll mistakes look like, and which ones hit the hardest and most frequently?
Overtime miscalculations can also lead to inaccurate labor-cost tracking. If you don’t know whether your employees are incurring too many overtime hours, you won’t be able to adjust schedules accordingly. That’s not even considering unpaid IRS payroll taxes from issues related to incorrect W-2s and W-4s. And the time it takes to do so won’t sit on an employer’s stomach well either. EY discovered organizations sink 135 hours into fixing sick time errors.
For example, in Illinois, employers can face both civil and criminal penalties for willful failure to pay wages on time. It’s also worth noting that consistently late payroll can trigger audits from tax authorities, as it may be seen as a red flag for potential tax evasion or financial instability. Employers should provide clear guidance to employees on filling out these forms and consider offering workshops or one-on-one sessions during onboarding and open enrollment periods.
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At Lift HCM, we understand the challenges of payroll processing. Having worked with numerous businesses, we’ve seen firsthand how easily payroll errors can occur and the substantial impact they can have. Whether it’s a minor miscalculation or a major compliance issue, the consequences can be transaction statement definition severe. The most common mistakes we encounter include incorrect wage calculations, failure to properly account for overtime, and issues related to tax withholdings.
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- You may have separate pay frequencies, depending on the work your employees do.
- Errors in final paychecks can lead to legal disputes and damage your company’s reputation.
- If your company doesn’t have a reliable way to track employee hours or paid time off, your chances of making a payroll overpayment or underpayment mistake skyrocket.
- Don’t have the time to check government websites or accounts to monitor tax rate changes?
And, consider writing a policy on how employees can expect to be paid if they are out of the office on payday. Consider using time and attendance software to add up and track your employees’ hours each day and week. If you do not use a software program to track hours, double-check your math when adding up employee hours. Find a payroll software into which you can plug other tools from across your stack to get a clearer picture of your data. Businesses need to properly classify workers (i.e., employee or independent contractor) and failure to do so can lead to hefty penalties.
Process the payroll as quickly as possible, or as soon as the glitch is fixed. Note that fixing the glitch should be a priority for your IT team. Send a company-wide email explaining the situation, apologize for the inconvenience, and inform your employees of the new pay date. To prevent these kinds of errors from happening, you could implement an annual “double-check” system, with each employee reviewing all their registered details for accuracy. Businesses — of all shapes and sizes — often make the same mistakes.
Ignoring State and Local Payroll Tax Requirements
Incorrect pay calculations will also inevitably give rise to inaccurate tax filings and accounting ledgers, causing further compliance issues. Beyond their average estimated cost, every mistake — from misclassifying independent contractors to missing due dates — carries the potential for litigation. In fact, nearly 1 in 6 (14%) respondents surveyed by EY said their company experienced legal, compliance and regulatory issues due to inaccurate payroll in the last year. But with so many steps in the payroll process, missing a key deadline is all too easy.
Misclassification of employees
Errors are harmful to payroll compliance and even risk litigation. Ernst & Young recently discovered just how widespread these issues are. Time punches alone account for hour workweeks, with expenses following at roughly six and a half weeks. No matter the type of error or how large the payroll is overall, fixing issues is an unnecessary time sink. Ideally, something consistent wouldn’t need to be corrected very often, right? Maybe not, but in the seemingly off chance a uniform charge issue derails payroll, EY found it could waste 188 hours of HR’s time.
Communicate what you need from them, by when and why it’s essential. Being transparent with employees can help fix any damage to the relationship and reinforce trust between you. In addition, making sure employees are well-informed about any errors and updates to processes will ensure you keep this relationship intact going forward. A fringe benefit is a form of pay for the performance of services. For example, allowing an employee to use a business vehicle to commute to and from work is a fringe benefit. And any fringe benefit an employer provides its employees is taxable and must be included in the recipient’s pay unless the law specifically excludes it.
