Payroll mistakes carry a substantial cost that businesses can ill afford. Even small mistakes can add up to thousands of dollars per employee annually, depriving the company of revenue and lowering its valuation.
Mistakes are hidden losses that often aren’t caught on the income statement and show as higher variable and fixed costs, impacting business decisions. An additional employee may be needed to facilitate production or customer service but can’t be afforded because of an entire employee salary or more being lost yearly due to mistakes.
So, what are the errors commonly made, and what is the best way to prevent them, if not eliminate them? Here are the answers.
The Mistakes That Cost Companies
Six mistakes result in the highest costs to companies; as mentioned, those costs add up. Here are the biggest mistakes.
Payroll Tax Mistakes
Running afoul of any taxing agency for non-compliance can be a nightmare scenario. Once that visit from an agent happens or a letter arrives in the mail, extensive reviews of payroll records, penalties, and interest result in lost time and money.
These mistakes are easily made if calculated by hand, especially considering differing employee exemptions and rules at federal, state, and local levels. They become even more convoluted when employees work in different states or cities, and trying to keep track of and tabulate them can mean the dreaded office visits from scowling tax agents.
If an agent audits payroll records and finds them messy or incomplete, additional fines can result.
Tax agents don’t show up to bring the office donuts and coffee.
Employee Overpayments
Overpayments to employees can happen in several ways. Regardless of how they transpire, the costs can add up.
The most common reason for overpayment is mistakes made by employees when compiling their work hours. It’s no secret that most employees put off writing down their hours until late Friday afternoon, which means almost no chance their hours will be correct.
A bit of social economics tells us that people like to remember their actions in the best light, and memories can unintentionally skew hours to their benefit.
Another common mistake is a miscalculation of hours. It happens all the time, and if 40 hours become accidentally tabulated as 45 hours, some expensive overtime ends up paid out.
Errors in time tracking or calculating can result in thousands of dollars of lost revenue over a year, depriving owners of their own paychecks and resulting in lost company funds.
Incorrect Financial Statements
Incorrect payroll can mean incorrect entries into the financial statements, or human error can result in the wrong numbers entered. Financial statements can end up skewed with hidden, incorrect entries reducing company value.
Attempts to reconcile those statements can mean a tremendous amount of work, especially if the company has multiple accounts and a significant amount of transactions and lost time is money.
Data Loss & Theft
Yes, this is a payroll mistake because it can be devastating to record-keeping or employees’ lives. An accidental push of the delete button can erase records in your spreadsheet resulting in tremendous time to re-enter them or incomplete records that won’t hold up to an audit.
Keeping payroll records on an unsecured server is another standard error that opens the door to cyber security risks and compromised employee records. The result of cyber theft on employees or even owners is tremendously challenging to fix and can upend lives.
Missed Paycheck Dates
If the business pays by check or direct deposit through their bank, a missed or late payment date can leave employees hanging through a weekend, eroding trust and morale. That’s the last thing a small or medium size needs when the productivity of each employee matters.
Missed Workman’s Comp Payments
States require workman’s comp, and it is taken very seriously. The outcomes of a canceled policy due to missed or late payments can be brutal. In some states, fines are up to $10,000 and a year of jail time. A canceled policy might be unknown due to an overlooked letter or missed call from the workman’s comp board. This outcome is genuinely one that no business owner ever wants.
The Solution
Avoiding these costly mistakes is as simple as an inexpensive . It saves business owners tremendous amounts of time while ensuring that records are accurate, taxes and workman’s comp are paid accurately and on time, and employee data is secure.
Employees are happy to receive payroll on time, you save big by and from accurately tracked and entered hours.
Summary
Mistakes happen, and they can be so costly to small or medium-sized businesses. The key to avoiding them is simple, easy, and inexpensive. A company not taking advantage of the benefits of payroll software needs to do so right away.