Payroll processing mistakes are often completely preventable. Even in the worst-case scenarios, there are ways that accountancy firms and HR professionals can solve issues and keep everything all running smoothly . In this article, we’ll provide you with a deep understanding of why efficient payroll processing is important for your business. We’ll also detail common payroll errors and what steps can be taken to improve the payroll process, along with how Wrike can help.
What is payroll processing?
Payroll processing involves entering payroll data into payroll software so that employees can get paid. This procedure involves handling various tasks such as calculating wages, processing payroll taxes, and producing checks or facilitating direct deposits.
If you're a small business owner, you most likely handle payroll yourself. However, as the number of employees increases, you may want to hand this task over to a HR manager or an accountant.
Larger businesses and corporations hire accountancy firms and HR professionals to manage payroll processing. It helps to involve experts in your payroll process because, aside from keeping track of all of the necessary details, their work will also help the company avoid getting into legal trouble.
Common payroll errors
Not tracking employee hours and overtime
At first, it seems like a simple process to track employee time. Just enter the hours they worked and turn them in at the end of the week or month and pay them accordingly. Unfortunately, the process is much more complicated than that.
Tracking both your employees' and managers' time is very helpful for businesses. Timesheets and time cards are often the tools businesses use to measure how efficiently they use their employees. It can help them improve margins, bid projects, and overall business performance.
Not meeting deadlines
Not meeting deadlines in payroll processing is more common than you may think. Although different states have different time frames, the basic rule is that payroll errors should be paid promptly. Doing so can help avoid penalties and minimize the risk of overpayment.
Not being able to meet a deadline can damage an organization's reputation and affect employees' payment. Having a good payroll schedule is also important to keep employees' trust.
Miscalculating overtime is a big payroll deadline issue. With all the various deductions and commissions that come with overtime, payroll administrators have their work cut out for them. When it comes to overtime, the general rule is that employees should be paid 1.5 times their regular wage for work that exceeds 40 hours in a workweek, but individual companies may have their own policies.
Poor time tracking software can also contribute to overpayment or underpayment. A payroll correction is also required when an adjustment is needed to be made to a payroll amount and may take longer than anyone would like.
Not reporting all forms of taxable employee compensation
Employee pay includes more than salary, overtime, and bonuses. Generally, you must report these forms of compensation to the IRS.
The biggest issue with this is forgetting to detail smaller exchanges that are outside of the standard salary or hourly payment. For example, not reporting sales incentive gifts, even if it’s just a $25 Starbucks gift card, to the IRS may result in penalties and tax liability for your organization.
Employee misclassification is one of the most common and costly errors. Not only can misclassification affect an employee's wages and benefits, but it can also cost the government valuable tax dollars, resulting in an audit. For example, if your company works with freelancers or independent contractors, ensure that they are not misclassified as W-2 employees.
Poor records management
Having incomplete or inaccurate records is a costly expense that many companies face. Record keeping is a vital component of payroll management. It’s also a must-have when filing taxes.
Having an efficient record management solution in place can prevent many errors from happening, such as payroll miscalculations and tax filing delays. It sets the foundation for success and plays a large role in preventing other payroll processing mistakes from happening.
Consequences of payroll errors
Every mistake made during the payroll process must be corrected to ensure that the correct records are kept. The IRS also has to know exactly how much money was allocated for each employee. In some cases, it can take longer to resolve errors than initially thought, as identifying and fixing these errors can be challenging.
Most of the time, it is difficult to ensure your payroll process complies with all the laws governing a business. However, with the right systems and software in place, you can avoid getting caught in a situation where you have to pay a large sum of money or face other repercussions.
When people work for you, they may be classified as employees or contractors. You may be responsible for paying them for various expenses, such as overtime. If a worker has been classified as an independent contractor, your company may have to pay back taxes and provide retroactive overtime pay. This can also be costly.
Also, employees expect to be paid on time. When the money is not delivered as expected, it can greatly affect their lives and cause them to feel dissatisfied with their work. Some employees may choose to leave when payroll errors occur. As a result, this can lead to higher turnover rates and cost the company more than it intended to.
How to correct payroll errors
A smooth payroll process is one of the most important functions in a business and it can help keep employees satisfied.
Although there are varying legal time frames for states, generally, it is the law that states that payroll errors should be corrected promptly. Doing so will help avoid getting hit with any penalties.
Having the proper payroll software and a project management tool can help prevent payroll mistakes from happening. These systems will help you track all of your employee’s professional services, organize and assign payroll-related tasks, and they’ll save time on manual data entry and evaluation. Tools like Wrike also allow employees to track their hours and overtime directly on the platform.
Most payroll mistakes can be avoided with proper planning and education. Unfortunately, there are many places where payroll mistakes can occur.
Most of the time, payroll errors happen because the payroll admin doesn't have the necessary information to properly handle the payroll process. Doing some basic research on the various terms and classifications of employees can also help avoid making mistakes.
Having a few reports running before payroll can also help catch potential mistakes or prevent them from happening. A payroll checklist is another helpful tool to keep track of all of the steps in the process. Your administrators can use it to keep track of all of the details and ensure that everything is accurate.
Another way to correct payroll errors is to keep a list of all the changes made during a given pay period. This will help ensure that the system is up to date. If you have already processed an incorrect payment, then it is important that you immediately report the issue to the federal and state entities involved.
If the payroll error is small, you can either immediately cancel the payroll or run a manual payroll.
Steps to streamline your payroll process
1. Spring clean existing records
From the start, gather all the details about the employees, including their Social Security numbers and any other factors that affect their paychecks. Use a project management system to create a single file that will keep track of your employee's personal details.
2. Consult available experts
If you have any doubts about the accuracy of your payroll deductions, talk to a bank representative. Some banks even offer workshops to help small-business owners get started with payroll processing.
Your accountants can also help you with payroll tasks and give advice on how to improve your productivity. And if your business is a corporation or an LLC, you can also get a list of forms and due dates from your state tax agency.
Hiring a payroll consultant is another great way to get started. They can help you get started by reviewing the books and creating a system that's personalized to your needs and easy to use.
3. Capture all facets of employee compensation
Aside from keeping track of employee hours, a payroll system can also help you manage various factors such as employee contributions, 401K plans, and wage garnishments.
Having a system that's adaptable to potential future payment types can help you get started. Remember that as you grow, it's important to keep up with the payroll requirements to accommodate the additional employees.
4. Automate alerts
Most payroll software has alarms and other warnings that can help you avoid missing important details. For example, suppose you forget to withhold taxes on any employee who earns more than $600 a year. In that case, your company could be responsible for the underpayment, so having an automated alert attached to this task is a must for accountability.
5. Use separate accounts
Instead of using the company's operating cash, establish a separate payroll account specifically for paying taxes, compensating employees, and other payroll expenses. Your bank representative can also help you keep track of all your payroll details between the various accounts.
6. Solve problems quickly
If the IRS or another agency informs you that money is due, don't delay to resolve the issue. It can cost you money in interest and penalties. Even if you're not a certified public accountant or a business major, hiring someone to help you set up a payroll system, for this reason, is a good idea.
How Wrike can improve your payroll processing services
Wrike offers accountants the tools they need to manage their work seamlessly all year round. With Wrike’s features, accounting firms and teams can easily collaborate with their employees and managers to deliver better results. Here are some of the many ways we do it:
1. In-app time tracking
Swap complex spreadsheets for a simple and secure time tracking software like Wrike. Wrike's pinned timer eliminates distraction and helps hourly employees keep track of all their task start and end times, which they can pause and resume when needed.
2. Timelog view
Create or double-check billing using Wrike’s accurate Timelog View. Timelog view allows you to see all time entries added to tasks in certain folders, projects, or spaces and is completely customizable.
3. Task duration measurement
Wrike allows users to keep track of all of their project and task durations in one central location. It will also give you insight into how things went, as well as what lessons were learned.
4. Color-coded calendars
Pull historical data from Wrike’s calendars to cross-check data entry. Color coding makes them easier to understand at a glance and is especially helpful for teams managing multiple types of billing structures, including milestone billing.
5. Gantt charts
Wrike’s Gantt charts are a great way to manage payroll projects. They allow you to track progress, communicate deadlines, and organize all other related details within a searchable file system.
6. Customizable payroll templates
Wrike Blueprints is a tool that helps you organize and track all of your professional services and projects with recurring tasks, such as weekly salary calculations. Blueprints are template documents that allow you to create new work items and keep track of all your changes. They can also be used to create new payroll projects that need to follow payroll compliance or have a specific workflow.
7. Integration with Microsoft Teams
With Microsoft Teams integration, you can easily create and respond to Microsoft forms payroll and add new employee data to them without having to duplicate data entry.
8. Integration with Zendesk
Wrike's integration with Zendesk allows you to record all tickets assigned to a specific employee and add them to to-do lists.
9. Workload management
Wrike's workload charts help you keep track of how much work is being done and how long it takes to complete it, which is useful for pulling historical data when a payroll error has occurred.
10. Shareable reports
Reports in Wrike are built-in record analyses that allow you to gather data from your time logs, spreadsheets, and other important payroll data tools. They automatically update to include the most up-to-date information.
Ready to turbocharge your payroll processing to avoid common mistakes and improve your business? Get started today with Wrike’s free trial.