Five most common payroll mistakes
The Five Most Costly Payroll Mistakes & How to Avoid
Payroll: Add up the hours worked by an individual for a specified period of time, multiply the
hours by an
hourly rate, pay that person the result, less a few deductions. So what's the big deal?
Regardless of how they do it, employers must pay their employees on
time and correctly. And each payperiod, employers are required to calculate, deduct, and pay
state taxes, unemployment insurance, workers’ compensation, retirement plans, 401(K)
benefits, sick time, vacation accruals, and garnishments (for child care or student loans), and
forms of compensation, such ascommissions.Sound confusing? There's more.
In several industries, employers are responsible for tracking different wage
rates on a variety of jobs, each with its own craft and fringe benefit requirements, different
different workers’ compensation codes all in one pay period or for one employee. Restaurant
payrolls are complicated by tips and gratuities, banquet tips and service charges. In addition,
businesses must comply with all the tax codes in every state in which they operate.
Payroll is an essential part of any business, but administering it can be cumbersome and
What’s more, the payroll burden continues to grow. As government regulations create new
there are new pitfalls, and new risks of fines and penalties.
Payroll preparation is not an easy job and mistakes can be costly. According to IRS statistics,
33% of employers make payroll errors costing them billions of dollars annually in penalties.
With more tax
law changes expected, there is even greater risk for payroll errors.
Besides penalties for late payment/underpayment of tax liabilities, payroll errors can sharply
employee morale and, in worst case situations, even lead to costly and embarrassing litigation.
Last November, the San Francisco Chronicle reported that two nurses and a medical clerk sued
over payroll problems, alleging that the county owed them back wages and frequently issued
late paychecks to hospital workers. At least 280 county hospital employees reported payroll
Smart, the medical center's chief executive officer was left without a good explanation and could
only say, "I
don't know the cause. We have a very complicated payroll system."
The lawsuit sought back wages plus damages, as well as a complete accounting of all back pay
due and an
injunction preventing the medical center from withholding pay. This is a situation that no
employer wants to
It's generally accepted that payroll is a nonproductive, repetitive, administrative activity, the time
and cost of
which should be minimized. Payroll tasks can stretch your resources and keep you from focusing
more important aspects of your business. When payrolls are prepared manually, they are
not only timeconsuming,
mistakes are inevitable and payroll errors can cost big money.
With the trend toward automation, more and more companies are bringing advanced technology
computers to handle inventory, accounting, word processing, and a multitude of other
back office functions.
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