Six Common Mistakes Companies Make in Payroll Processing
Any business with employees must have a system to handle all the payroll activities, including paying employees, paying taxes and filing all the necessary government forms. During such activities, mistakes happen to the best. Every business owner have to deal with payroll as they grow their business.
Here are the seven common mistakes that have been seen the business owners make with payroll and see how you can avoid getting tripped up.
1. Miscalculating overtime pay of salaried employees – This is seen to be the most common problem and there must be guidelines to follow when determining overtime pay. In the recent years, litigation has been increasing that claims on employees who were treated as exempt that are not entitled to overtime were misclassified. On the other hand, the professional employees can make large sums of money while working some extra hours.
2. Paying the wrong amount for incorrectly calculated working hours – This could happen for many reasons. We have seen employers reporting incorrect working hours in figures entered into the payroll system. Therefore, it is advised to double check all the payroll information, as it can turn to be a serious issue during audit for the employers, where he/she had to pay a lot of back wage.
3. Processing payroll late – By day-to-day operations, an employee get so consumed that they may forget to process the payroll on time. It’s important to use the payroll processing service to stay on schedule and avoid any misapprehension.
4. Overtime calculation rules – Calculating overtime is a weekly affair, not according to the pay period, which is every two weeks or twice a month. Most of the times, employers calculate overtime for hours over 80 hours worked and not weekly. According to the laws in most countries , it is required to pay employees overtime for normally working over 45 hours every week. However, the varying statutes and exceptions in states on the overtime laws make the payroll process more prone to mistakes.
5. Overlooking administration of health insurance plan – Company employees who have the health insurance plan and other statutory deductions must allow their employees with a tax free payroll deduction as a part of the plan. Creation of the annual plan document and compliance with the notice requirements is included in the administration of the plan. If not do so, then the IRS cannot allow pretax deductions for all the employees during the audit.
6. Forgetting to keep the payroll and other vital records – Whether it is a big company or a small-sized business, audit is a word that’s dreaded by almost everyone. In this particular situation, your scrupulous business records are the only help to get you through it. These records especially include the payroll records for at least last three years. In some other cases or states, they may require businesses to keep these records for even longer than three years. It is advisable to check the regulations with your state labor office or to consult an experienced employment attorney. Typically, these documents include I-9s, W-4s; direct deposit authorizations, timesheets, and payroll files (tax forms, pay stubs, and more).