Payroll administration isn’t just important—it’s vital. Paying your employees accurately and on time is key to retaining them, keeping them engaged, and even bringing in new talent (trust us, if your business has payroll issues, word will get out!).
And while your employees deserve an airtight payroll in any hiring climate, it’s especially vital today, with job-hopping being quite common. If you can’t pay correctly or on time, your employees will likely seek out an employer that can. When pay mistakes are egregious, some employees even consider legal action. On top of that, payroll issues are sometimes violations of the law that can put businesses at risk of investigations and fines.
Despite these high stakes, employee payroll management mistakes are still sadly common. Want to make sure your business avoids them? Whether you're a business owner, HR manager, or internal payroll administrator, here are five of the most common payroll administration errors we see—and how to prevent them or course-correct:
It can be tempting to process one-off, occasional, and recurring pay deviations without keeping detailed notes on exactly how and why they were made.
This is a huge misstep.
Think about it: If you undergo an audit two years from now, will you remember why, say, a certain salaried employee had a pay decrease for just one pay period – information auditors expect? And audits aren’t the only reason to keep orderly notes. Accurate and ongoing employee payroll documentation safeguards your business in any of the following scenarios:
The takeaway: Documentation is key. Whether hard copy or electronic, set up an organization system that allows you to readily keep and find these records and make them accessible to other authorized payroll stakeholders. A good rule of thumb is to keep one file per pay period.
Examples of payroll events to document include:
Do you outsource your payroll to a payroll processing company? While a lack of documentation may be common for in-house employees managing payroll, payroll processing companies don’t necessarily keep notes explaining specific pay changes, either. Keep this in mind when considering an outsourced payroll processing company versus a full-service outsourced HR firm like myHR Partner.
Mistake #1 is about documenting payroll changes, but what about the recurring payroll process?
Payroll processes that exist solely in someone’s head create unnecessary risk! Payroll administrators sometimes give notice, become unable to work, or want to take a long stretch of vacation. Without written processes to turn to, a company is exposed and at risk. Miscalculating pay or neglecting to handle independent contractors correctly can result in regulatory fines, payroll audits from legal experts, and other consequences.
myHR Partner’s standard operating procedure protects against this liability. We create a written payroll process guide for each of our clients and consult it every time we process payroll on their behalf. The guide breaks payroll processing into clear, well-outlined steps and explains where to find all related documentation.
If you create a payroll processing guide, remember: The more detail, the better. Someone new should be able to jump in and process payroll using it and it alone. Screenshots of all key steps are a valuable addition.
Discussing one employee’s pay with another—unless they’re a manager—is a major misstep. Yet, it’s one of the most common payroll errors. Those in charge of payroll administration must understand with whom they can and cannot legally discuss pay information. This applies to people within the organization as well as outside. Generally speaking, employee pay rates and other information related to payroll records can be discussed with said employee, their manager, and human resources.
But what if you receive an email from Jeff asking why his hourly pay rate is different from Karen’s, given they started on the same day and have the same title? Answer Jeff’s questions about his own pay, but don’t discuss Karen’s pay with Jeff at all.
If family members work in your organization, treat them as you would any other employee. Don’t discuss one family member’s pay with another, not even if they are married or are company leaders.
For some myHR Partner clients, confidentiality is a driving reason behind their decision to outsource their employee payroll management.
Since 2020, remote work has become common in many industries, making it more likely than ever before that employees may live in one state while working for a company based in another. Businesses physically located near a state border are also likely to have employees who live and work in different states, which can also result in costly payroll mistakes if not handled properly.
An employee’s state income tax and state unemployment insurance are almost always paid to the state where the employee physically performs their work. However, state reciprocity rules and other special cases can create exceptions that need to be heeded for all applicable jurisdictions represented in your payroll. Take Vicente LLP, a myHR Partner client. Our team helped them accommodate employees in a wide swath of states, including high-regulation states like New York and California.
Tax-related payroll mistakes can be time-consuming to correct, can have a bearing on employees’ take-home pay, and can cost your organization money. Periodically review the state tax setup for your employees.
Rare is the pay period that’s unaffected by holidays or other calendar events – events with the power to delay employee pay.
To avoid this common mistake, develop a detailed payroll calendar to make sure you’re considering all possible calendar events before you begin — key to paying employees on time. These include banking holidays that can impact payroll submission deadlines. Monitor payroll changes as they come in, too, so you can ask questions and get clarification where needed before payroll processing day.
Remember, as an employer, you have a duty and a legal obligation to pay your employees accurately and on time. All of the other dos and don'ts of payroll management serve this one overarching goal!
Are you struggling with payroll mistakes, or do you simply need more resources to ensure smooth payroll administration? Turn to myHR Partner for payroll administration.
With myHR Partner, you get a dedicated team of payroll professionals who abide by the best practices outlined above and many more. Our payroll team works seamlessly with your chosen payroll vendor to ensure employees are paid accurately and on time. Better yet, our payroll management services are soup to nuts, meaning we have the right tools to handle every last internal aspect of the process on your behalf. We ensure total peace of mind whether it's time to process another payroll or it's year-end.
By putting your employee payroll in the hands of time-proven, responsive professionals, you can avoid missed deadlines, reduce the risk of financial consequences for non-compliance issues, and focus on building, growing, and improving your business. Let's talk about transitioning your payroll management process to myHR Partner- schedule a free consultation today.