Common Payroll Mistakes and How to Avoid Them

By | September 30, 2022

For a business, irrespective of its scale, industry of operation or goals, payroll duties are a key element. Effective payroll management ensures the employees are motivated with correct and on-time payments, & the business’ financial and brand reputation remains intact and strong.

Moreover, government regulations and compliance for payroll management is also an inevitable part of any firm’s operations. For example, the Fair Labor Standards Act (FLSA) of the United States mandates all employees must receive overtime for anything in excess of 40 hours per week, unless they are classified as exempt.

Businesses employ various methods to calculate employee payroll and calculate payroll hours. Nevertheless, not having the correct software in place can often result in systemic or clerical errors that hamper a business’s ability to accurately pay employees on time. 

Businesses that use manual traditional methods for payroll often make mistakes and overpay for field staff who might be filing their timesheets with incorrect information. Let’s take a look at some of the common payroll mistakes and how they can be resolved.

Miscalculating Pay

The most common error, namely wage miscalculation in payroll management is also agonizingly the most serious, and recurring error.

Different organizations struggle with calculating the exact earnings of employees due to various reasons including but not limited to:

  • Complexity of calculations 
  • Varied pay rates across different time and job sites, leading to unforced human errors
  • Companies with large workforces in the field performing various tasks at multiple locations 
  • Legacy payroll calculators

Payroll errors can seriously erode a companys’ credibility. As per the American Productivity & Quality Center (APQC) research, firms take between 2 to 10 days to resolve a payroll error

The Solution

For accurate payroll, a firm should employ real-time tracking solutions with seamless integrations to their payroll system. This is because advanced time tracking solutions capture accurately the time employees spend on tasks in the field, reducing errors. Integration with the payroll system helps bring this time tracking data from the field directly into the payroll system without any manual intervention. 

As an organization expands, manual payroll processes are unable to scale. An automated payroll workflow is the only option that handles the complexities in a field service organization.

No tracking of work hours and OT for payroll management

Government regulations mandate different rates and methods of calculating and paying OT or overtime to workers according to their location and nature of work.

While employees are out in the field, there is a lack of visibility into their working hours and when they might be working overtime. Without any tracking, the business is dependent on the employee to report if they worked overtime and how many hours they put in. 

The Solution:

Firstly, it is absolutely essential to know the pay requirements by state. Second, an organization must be able to track worker hours and be able to ascertain if they are working regular hours or doing overtime. In addition, overtime rates are different from regular rates, hence its critical for time tracking systems to apply the appropriate rate for every task performed by every employee in the field. 

Fragmented or incomplete employee payroll records

Manual or semi-automatic time and employee tracking often leads to huge data gaps which lead to inaccurate payroll. 

Employee payroll records must contain the employee codes, name, clock-in and clock out timings, duration of work, exit time, break hours, OT hours (if any), standard wage rate and overtime wage rate as determined by the State.

A dashboard or report consisting of all of the above might still not be the most optimal solution since such data can be in fragments obtained from different sources, and in non-real/deferred time.

The Solution:

Time tracking software is ideal to address data gaps since it comprehensively tracks all employees during work hours and captures time clocking data along with all the details, pay rates and overtime hours.  Integration with payroll systems enables this time tracking data to be sent directly to payroll with high accuracy. Complete data capture can also help companies analyze employee performance which can be beneficial as well.

Incorrect employee classification

FLSA (The Fair Labor Standards Act) provides guidelines for OT and minimum wage for most employees, even though independent contractors are not afforded the same safety. Similarly, exempt and nonexempt employees also have different legal rights and protections.

Some firms mistakenly misclassify exempt and nonexempt employees leading to legal compliance issues. These errors can lead to missing tax payments as well as inaccurate paychecks. 

The Solution:

Having a time and employee tracking system with desired capabilities can ensure that incorrect classifications are flagged immediately or at desired intervals. Since time tracking happens in real-time, it is an error-free and self checking system that ensures that no misclassification can occur. 

Inability to synchronize employee tracking data with the company’s payroll system

Firms often use payroll software solutions such as ADP, Gusto, Quickbooks, Paychex etc. 

Yet, inaccuracies happen due to manually moving data from attendance apps, time tracking devices, clock in-clock out solutions as well as the employee’s work device such as a laptop or mobile phone.

This is due to the inability of field management, attendance and location tracking software to integrate seamlessly with top payroll solutions like those mentioned above.

This not only leads to loss of time cost in moving data from one platform to another, but it also creates a hurdle in data flow since the data cannot flow seamlessly between the payroll platform and the other.

The Solution:

The best solutions need to work in-tandem with the payroll management software. Integration between a time tracking system and the payroll system ensures that data can move seamlessly between the two systems. Time tracking data needs to be sent to the payroll system while the payroll system provides information about pay codes that correspond to different pay rates. 

Some things to consider before picking the right solution are:

  • Whether end-to-end lifecycle support is provided
  • Availability of an integrated solution to in order to create an automated payroll process
  • Comparison with available features as per the firm’s needs

Conclusion

Payroll errors and discrepancies are common and costly. Many firms and their management are aware of the primary payroll issues in the firm and any attempt to resolve these manually is usually not scalable or repeatable.

A firm could reach optimal levels in execution as well as accuracy in payroll management by utilizing an automated tracking and payroll workflow solution. An optimized payroll management process where data flows seamlessly between time tracking and payroll systems can reduce costly payroll errors and improve productivity across the organization.