Even established companies with seasoned payroll departments encounter problems from time to time, so don’t worry if your business has experienced some hiccups along the way. As frustrating as errors can feel to you and your accounting team, you can overcome them and develop an efficient and low-error department that keeps your staff happy, thanks to accurate and on-time pay.
Not only do you have to monitor standard payroll concerns such as managing tax-related matters and ensuring accurate accrual of benefits; you also need to prepare for all the incidental curve balls that only accounts payable can manage. Here are five of the most common mistakes with payroll that you might face when streamlining your specific processes:
- Not staying current on new payroll laws, rules and regulations. Whether a new law, rule or regulation helps you determine the difference between independent contractors and consultants, assign exempt versus nonexempt status to employees, apply a newly mandated minimum wage, or comply with new Fair Labor Standards Act (FLSA) statutes, they are tools that will help you stay in compliance. When you miss a new law — such as exclusions to FLSA coverage — you stand to lose invaluable time trying to amend any payments you have made using a previous law or rule. Create a calendar that helps you remember to check for updates on all relevant laws.
- Failure to commit to a consistent payment schedule. If your company is new, or has just started adding new staff to the payroll in larger numbers, you may face the need to decide on a payment schedule. Even seasoned companies sometimes need to take a look at their payment schedule to see if it is the most effective for your business. The most common payment schedules are either every two weeks or weekly, while sometimes employers pay on a semi-monthly or monthly basis. Keep in mind that most states do have a minimum pay period required by law. More importantly to your company, the frequency with which you pay employees — even if not ideal for you or the majority of your employees — is less important than making no choice at all and choosing to pay at random times.
It is also helpful to make sure your company gives enough time between the end of the schedule and the pay date so you can process and approve time and capture any PTO and allow for direct deposit bank transactions. Failure to commit to a consistent payment schedule will likely result in a decrease in productivity and morale, and it could negatively impact your cash flow. Creating a payment schedule will help you keep better track of all of your organization’s accounting functions.
- Lack of solid planning. Everything from submitting your payment data to an outside payroll management firm; to noting holidays that fall on paydays; to issuing 1099s and W-2s, requires solid planning to stay in compliance and keep employees and the IRS satisfied. Work with an official calendar, which you can import from the U.S. General Services Administration (GSA), tailoring it to your company’s specifications, which might include additional days off or holidays. When you miss important issuances or payments, you will hear negative feedback instantly; and you do not want negative feedback from the IRS, employees or customers. Ultimately, lack of solid planning creates added stress for you and your team, as well as the risk of the previously mentioned errors and worse.
- Miscalculating net versus gross payroll. Calculating payroll taxes is one of the more complex aspects of any payroll manager’s duties. Again, it puts you at the mercy of the IRS, which tends to create an anxious feeling in the most dauntless of payroll professionals. Even if your business is new — and you want to increase profits where possible — you need to work out this calculation with precision, always erring on the side of caution and taking out enough taxes from employees’ earnings to satisfy your tax responsibilities while fairly compensating each employee. A miscalculation due to incorrectly setting up the taxation on incomes and deductions can also affect net verses gross payroll.
- Ignoring or missing a garnishment request. Garnishments are probably one of the last things you want to deal with as a new business owner, but it is a reminder that things will not always flow according to your plans. As soon as you receive a garnishment order — whether from the court, the IRS or another debt collection body — place a copy of the order in the employee’s file and add it to your calendar to make sure you make the appropriate deduction from each payment.
While mistakes present challenges, they also give you a chance to sharpen your skills in all things payroll to keep employees and the IRS satisfied while working to improve your bottom line.
Christian Valiulis joined APS in 2009 at a time when the adoption of cloud technology for HR and payroll by mid-size businesses began
its rapid ascent. As Chief Revenue Officer of APS, Valiulis applies his 25+ years of experience helping companies leverage technology to improve their operations and gain a competitive advantage. Christian currently serves on the payroll Advisory Board for HR.com. APS (Automatic Payroll Systems Inc.) is consistently one of the highest rated HR and payroll providers for support and software ease of use.