January 3, 2021

Payroll Problems: The 6 Most Common Payroll Issues and How to Avoid Them 

The world of payroll can be daunting, which is why many businesses hire accountants and payroll staff to manage everything related to it. However, if you’re in charge of both choosing your payroll software and managing it, there are a few common issues you’ll want to avoid. 

Choosing the Wrong Software

Given the sheer number ofoptions available when it comes to payroll software for small business, it’s easy to become overwhelmed. If you’ve never invested in payroll software before, you may even believe that they’re all very much the same. 

However, the opposite is true. Some software programs are targeted towards large businesses, while others are better suited to small enterprises. Some offer support and seamless platforms, while others are more suited to those who want to do everything themselves. With this in mind, it’s always worth doing your homework before you commit to new payroll software for your business. 

Not Calculating Pay Correctly

Calculating pay seems straightforward. You take the hourly rate and multiply that by the number of hours each employee worked. Of course, there’s much more to it than that. You have to calculate commissions, paid time off, deductions,overtime, and more. 

There’s a lot of room for error, which could result in a significant sum of money being under- or overpaid. Ensure you’re well aware of how your state’s pay calculations work before finalizing paychecks. 

Missing Deadlines

Time management is not everyone’s strong point, but it’s important when it comes to payroll. Not only can tardiness mean your employees don’t receive their payments consistently, but it could be illegal. 

Each state has apay frequency requirement. Failure to abide by those requirements could mean you have to pay a late fee or penalty. If you know your time management skills could use some work, set an alarm to remind yourself at the same time each pay period to handle wages and salaries. 

Not Keeping Records

As much as we may like to have a file cleanout from time to time, it’s important to leave those payroll records alone – at least for three years. The Fair Labor Standards Act (FLSA) requires every business owner to keep payroll records for hours worked, dates, and rates. 

These requirements may be stricter or freer, depending on the state. Keeping these records can benefit you in the long run as you may need them for auditing.   

Misclassifying Your Employees

Under the law, the FLSA allows employees of businesses to benefit from overtime and minimum wage. However, independent contractors fall under a different set of legal rights. It’s essential to make sure you’ve given your employee the correct classification. If you get it wrong, you may have underpaid or overpaid your workers and short-changed the tax department. 

Not Remaining Compliant

Rules and regulations surrounding payroll can change every year at state and federal levels. As much as it can be overwhelming to learn the new changes, it’s imperative. If you don’t adjust your business practices accordingly, you may find that your workplace isn’t providing the correct information, which could lead to costly compliance gaps. 

Take time out of your day when changes roll in to master what they could mean for how you do things. If you have a payroll team, talk to them about whether anything needs to change. 

Payroll can be complicated – there’s no other way to say it. Thankfully, some of the most common payroll issues have simple fixes. First and foremost, make sure you’ve got the most appropriate software. You can then work on staying compliant, sticking to deadlines, and managing wages effectively.  

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