Since payroll involves payments to many employees, companies and administrators want to keep the process error-free. It is easy to understand the cost of such errors to a company, especially from a revenue standpoint. These errors have a secondary cost that is not easily visible – on the employees and their net salaries.
How payroll errors can hurt employees
Mistakes in payroll processing cost a company time and money, directly and indirectly. The cost can be two-fold – first, the error itself and a shortage to the employee and second, the time and money required to fix it. Payroll processing is quite complex and there are many areas in which mistakes can occur. An experienced administrator should be able to catch these errors and fix them fast. If these errors are not caught and addressed immediately, it can result in penalties for the employees and the organization.
The bigger picture of the impact of payroll errors is very evident. Imagine a situation in which an error results in late salary deposits or less money to an employee. He/she is not able to pay a mortgage or a credit card bill. This draws penalties from the banks. If this employee lives from paycheck to paycheck with little in savings, they may not be able to buy a car or even pay their medical bills. This can significantly hurt the lifestyle of employees depending on a paycheck and can bring down your company’s employee satisfaction by a significant margin.
Paydays are very significant for employees as they depend on a date to make their lives go smoothly. If an error occurs once and never again, it can be dealt with as a glitch. But if it is an ongoing issue, employees will look for new jobs as they don’t want to deal with the uncertainty. The damage to a brand can be devastating if it is not addressed immediately.
What could some common payroll mistakes be?
Payroll processing is quite complex and there are many areas in which mistakes can occur. These can be rectified quite easily to streamline the process. If the errors are not caught and addressed immediately, it can result in penalties for the employees and the organization.
- Wrongly classified employees: Companies operating in multiple countries must doubly ensure that they meet local laws regarding employee salaries and benefits. If an employee is misclassified, then they get paid less, whether it is due to mistakes in data entry or miscommunication.
- Salaries/wages not properly calculated: Payroll administrators must track several items on an employee’s payslip – over time, medical and retirement deductions, commissions, to name a few. If the hours are not logged properly, correcting this results in an administrator working longer hours and budget overruns.
- Missed payroll deadlines: Time is a crucial factor in payroll processing. With a lot of steps needing attention, missed deadlines happen. Employees count on their HR and payroll personnel to get their salaries on time. Missed deadlines can result in longer working hours for the payroll department and penalties to the company. Another aspect of missed deadlines could be delayed approval from the manager or incomplete paperwork.
- Inaccurate work records: Keeping full and accurate payroll is essential. There are laws requiring companies to keep these and the period varies from country to country. These records must include details such as no. of hours worked, rates of payment, payment dates, etc. This may sound like a lot, but it is very basic information and required.
What is needed to overcome these payroll issues?
- Invest in tools: The best and easiest way to avoid payroll problems is to get the right software programs that manage payments as well as HR. These work together to provide information such as employee-related information, salaries/wages, no. of hours worked, bank account information, deductions and so on. This also cuts out the need to enter information twice.
- Hiring competent staff: Often, payroll problems occur when admins don’t know or don’t have the right information. Since laws change often, it is essential to ensure that the admins keep up with current regulations.
- Running reports before making payroll payments: Payroll software can help in running off-key reports before wages have to be paid. Getting reports on deductions, payroll registers, and other essentials can help in ensuring that the final payments are done correctly.
Protecting the payroll process is crucial as it must be flawless and on time, every single pay period. With the easy availability of automated tools, it is easy for HR and payroll to maintain a seamless and well-organized database. Once this is taken care of, HR can focus on employee productivity and other programs that increase the company’s revenue stream. All it takes is one or two mistakes to lose your reputation and employees.
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