10 Common Payroll Mistakes and How to Avoid Them

10 Common Payroll Mistakes and How to Avoid Them At All Cost

It’s payment day!!! This statement makes many happy when they are the ones receiving the paycheck. But what about the other end of the stick? To be frank, for the ones paying, it isn’t much of a joyous event. But what if this day gets loaded with some common payroll mistakes? The worst day for the employers!

For a small business owner, it becomes more imperative for all avenues to be covered. Especially payroll. It is one of the most important links to maintaining a business. The reason behind this is a well-defined, timely payroll will bring satisfied employees which in turn will help you keep them motivated to work more for your business.

Thankfully, knowing the payroll system and understanding common payroll mistakes to avoid is not something that can’t be fixed.

We bring to you a list of them and how to avoid payroll mistakes.

Here are Some Common Payroll Mistakes That We Make and How to Fix Them:

1.    Wrong classification of employees

It is observed that offices have two types of people working: employees and contractors. The employees are further classified as exempt and non-exempt. We need to understand that the employees are provided a set of benefits and safeguards such as timely payment, minimum payment wage, etc. under the Fair Labor Standards Act (FLSA).

The Contractors are independent and are not provided any such benefits from the law. Also, different legal rights are provided for exempt and non-exempt employees. There are high chances that HR managers/ employers, in a hurry, may make a mistake and can unknowingly assign a wrong status to an employee.

Such a mistake may cost you long legal issues if it comes under the scanner. Hence, always keep a check and recheck the status assigned to your exempt and non-exempt employees as well as the independent contractors.

2.    Rolling over a payroll deadline

What can be worse than missing the schedule to pay your employees? This mistake is not just about late-paying your employees. It comes with additional repercussions such as falling trust, a higher employee leaving rates, etc.

As a human, one needs to understand the problems faced by humans. If an employee is the only working member in the family, the problems that the family face due to a late check is immense. The rents, the additional expenses mount a heavy load on the finance constraint of a family.

Moreover, if you are a small business, such inconsistency will cost you, valuable employees.

3.    Failure to pay Overtime wages

Employees put in their time and work for the benefit of the organization. Sometimes they overclock their working hours for the efficient and well-managed output for the firm. The employers need to provide them with their normal pay alongside their overtime pay if any.

Many a time, what happens is that the employer wrongly calculates the time clocked in by an employee. This leads to a situation where the employee misses on their overtime pay.

The employer must also keep in consideration the rules while paying overtime wages to your employees. Generally, It is about 1.5 times more than the normal hourly wage. Also, normally, any time clocked above 40 hours a week is considered overtime. The overtime payment rate differs from state to state. Please ensure that you follow the regulations of the land.

4.    Improper tax management

There are taxes that the employer must pay on behalf of the employee to the US government. You must withhold the amount to be provided for taxes from your employee’s payroll.

See to it that proper forms are all filled up and completed before the due time. Federal laws, state laws, and local laws have set bound taxes. Understand them properly and find which applies to each of your employees and proceed likewise in your taxing endeavors.

5.    Improper maintenance of the pay records

Having a thorough stance with money is not bad. Instead, this is quite beneficial. Be careful and be aware of where the money is flowing. A person who manages money properly will have the least trouble managing records.

For legalities, the employer must keep their payroll records up to date. If not, there is a high chance of legal entanglement. As per the FLSA act, the employer must maintain 3 years of record at the least.

These records must contain hours worked, payment rates, payroll dates, etc. This is only the tip of the iceberg. While this may seem as though a ton of information, a few states require much more, with records much older. US States have a different State Payday Requirements for every state.

6.    Not considering the bank holidays

This may be a factor that affects small business owners. In the heavy hustle of the day, you might forget that this month’s payroll day falls on a bank holiday. Banks don’t process during bank holidays

While this might seem to be an innocent mistake, it would look good on you to plan your payroll days with some systems or personnel who will keep in all data and flexibly move the dates as per need.

7.    The frequency of payment

The payment for each month should be done properly. Employees are dependent on your paycheck to manage all their needs. Many states maintain laws that state that the employer must provide the wages at a minimum frequency between two pay periods.

The frequency cannot be increased more than the minimum. But it can be reduced i.e. payments can be done more frequently but not lesser than the minimum frequency.

8.    Improper consideration of training period

For better efficient work, employers provide training to employees. But it must be noted that no pay cuts can be made for the training period if it doesn’t meet all the below-given criteria.

  • If the training happens beyond the working hours
  • it is voluntary
  • If it is unrelated to the job
  • If there is no work being done simultaneously

Employers must act according to this definition as per the FLSA act. See to it that no unnecessary cuts are being made from their employee’s wages.


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9.    Not considering for time spent off work during a work injury

It is possible to face injury during the time an employee is working. If such a scenario happens, FLSA says that the company needs to pay for the waiting time and pay for the treatment. Provided that the treatment being done must fall under the working hours.

10. Improper tax calculations

The employers must always stay up to date about all the laws revolving around taxes. If there is any change concerning tax laws, the change must reflect in your payroll systems too. If not, you will be exposed to legal machinery that will be heavy on you and your firm.

Wrapping Up

These are some of the common payroll mistakes that employers/HR managers do. Being ahead of time and understanding the possibilities of any error will help you sort your worries. Everyone loves an employer who pays on time and keeps the tab cleared for all employees.