September 12, 2022
How Payroll Errors Are Costing Your Business A Fortune
Setting up payroll is a tedious process, involving paying attention to details. It contains a formal agreement between job owners and employees on payment structure, alongside various forms of documentation that dictate the financial structure of the business and the employees. Because of the monotonous system, business establishments are prone to making unintended payroll errors which inadvertently disturb stability.
Unfortunately, payroll errors are largely unforgivable because of the massive blowback on companies, hence the need to avoid such errors. Understanding the cost of payroll errors in your business makes you better prepared to aggressively combat these mistakes before they grow roots and suck your business dry, the goal nevertheless is to completely alienate payroll errors in your business.
Most Common Payroll Errors
There are different classifications of payroll errors, each producing consequent effects. It is therefore important to identify the particular mistake made for prompt correction. Payroll errors include, but are not restricted to the following;
- Misclassification of Employees
Employees could be classified based on an exemption from overtime into exempt and non-exempt employees, they could also be identified as independent contractors. Misclassifying employees would largely disturb the payroll attracting unwanted consequences.
Other payroll errors include miscalculating pay involving underpayment and overpayment, missing the first paycheck for new employees, etc., improper tracking of employee hours, poorly organized records, and not reporting forms of taxable employee compensation (employee rewards and add-ons like the use of company cars or accommodation), missing deadlines and incorrect W-2 documentation.
How Payroll Errors Impact Your Business
The consequent effect of payroll errors are detailed below:
- Financial Implications
Payroll errors could result in non-compliance with government laws. Misclassifying employees could rid your workers of deserved overtime, which contrasts with the declaration of the Fair Labor Standards Act (FLSA), in the long run, your business could be fined or made to face severe repercussions.
In addition, if errors happen multiple times, you could lose workers, require recruits and spend more on recruitment and training exercises. You may be required to pay back underpaid employees with interest while restitution from overpaid workers might be impossible. Summarily, payroll errors could incur grave financial expenses, affecting business stability.
- Poor Brand Reputation
Without a doubt, businesses thrive on testimonials and public acceptance. If payroll errors are consistent, testimonies of dishonesty and incompetence permeate the community, and the business loses its credibility, beginning a dreadful journey downhill.
- Reduced Productivity
Workers that are victims of payroll errors are discouraged from working and develop low morale which in turn impacts productivity negatively, spelling doom for the business. Retaining employees is important for the sustainability of the business.
Furthermore, chances are you could lose your brightest minds, exposing your business to diminished productivity.
- Misplaced Channeling of Labor Hours
The payroll errors would have to be corrected, records must be set straight and the proper payment implemented. This would signify overworking your payroll staff and time that could be spent on other tasks would be wasted on identifying and resolving errors – an assignment more tedious than the actual payroll task.
Preventing and/or Resolving Payroll Errors
You can employ the services of third-party payroll companies to ease your staff of the assignment or use appropriate HCM software systems to prevent further occurrences.
Payroll errors are unintended, tragic circumstances that could harshly plague your business. Employing the services of Providers with specialized programs like Applicant Tracking System, Automated Onboarding, etc. prevents the recurrence of payroll errors and promotes stability in your business.
Disclaimer: The information provided on this blog page is for general informational purposes only and should not be considered as legal advice. It is advisable to seek professional legal counsel before taking any action based on the content of this page. We do not guarantee the accuracy or completeness of the information provided, and we will not be liable for any losses or damages arising from its use. Any reliance on the information provided is solely at your own risk. Consult a qualified attorney for personalized legal advice.