5 Common Payroll Compliance Mistakes to Avoid

Payroll is a core HR function that carries a lot of importance but often comes with a high possibility of mistakes. While payroll mistakes are common, they can be costly to organizations and decrease employee satisfaction. Whether you are a new organization starting up payroll or have been running it for years, it’s crucial to be aware of common errors. Here are 5 common payroll mistakes and how to avoid them.

5 Common Payroll Mistakes to Avoid

Incorrect Worker Classifications

When classifying employees for payroll, even the slightest error could lead to a potential violation of the Fair Labor Standards Act (FLSA). Whether you have a variety of workers consisting of exempt, non-exempt, or contract employees, it is wise to familiarize your payroll department with the FLSA’s guidelines for misclassifications. While your employees appreciate accurate paychecks, the fines can be hefty when violated. 

Miscalculating an Employee’s Pay

Employees rely on their paychecks, and one mistake may negatively affect their livelihood. Beyond their base compensation, if employees earn additional income such as bonuses, reimbursements, stipends, and sales commission – these need to be factored into their paycheck. To ensure nothing falls through the cracks, give employees clear expectations and make sure dates are set up for these payouts. 

When running payroll, it’s also wise to keep an employee’s garnishments top of mind. Failing to hold the correct garnishments for fines, taxes, and child support can lead to more significant issues for the employee and the organization. Beyond garnishments, It’s equally essential to ensure the correct benefits deductions are held from each paycheck- ranging from health insurance, HSA, or FSA accounts to pre-taxed deductions like commuter costs.  

Missing Pay Deadlines

One of the biggest mistakes is also one of the simplest – forgetting to run payroll. Organizations need to follow through on paydays to ensure they aren’t putting employees in a pinch. 

The first step to fulfilling pay deadlines is determining your organization’s pay frequency. There are a handful of pay frequency options: Monthly, Semi-monthly, bi-weekly, weekly, and even offering on-demand pay. Every business needs to determine which payroll schedule is suitable for their company. But, it’s not always that simple. Small businesses must consider the needs of the business and the needs of their employees before making their decision.

Neglecting Tax Forms

Paying your employees for hours worked is not as simple as just putting money in their pockets. When your company has a functioning payroll, it is important to ensure your tax paperwork stays up to date to remain compliant. Tax rates need to stay updated in your payroll system to avoid having to issue payroll corrections and/or incur a fine. 

It’s also worth noting that failing to remain compliant with tax paperwork can be an inconvenience for your employees. At the end of the year, employers are required to send W-2 forms and 1099s to contract employees. 

Incomplete Records  

The FLSA requires organizations to retain payroll records for three years, and some organizations even opt to keep additional employee records on hand. These records keep track of all employee pay information at the organization and are crucial to have when an organization is audited. It can feel tedious keeping track of payroll data but doing the work upfront reduces errors down the line, and may prevent your organization from incurring potential fines. 

Payroll as Part of a Robust, All-in-One HRIS

Each feature of BerniePortal works in harmony with the others, solving unique problems HR professionals face daily. BerniePortal offers payroll Integrations that allow small to mid-sized organizations to feel confident about their payroll functions while ensuring fewer errors.