How to Avoid Expensive Payroll Mistakes

calendar April 4, 2019

Managing payroll correctly is a critical part of doing business, especially for small to mid-sized companies. Fewer employees and smaller margins leave less room for payroll error. Costly fines, penalties, and legislation can be catastrophic.

Even if your payroll mistake is accidental and relatively small, it can quickly balloon into a large financial burden. Like the time this company’s $608 overtime mistake ended up costing them nearly $45,000 dollars.

In addition to the standard fines and penalties, payroll mistakes can also lead to unhappy employees, low workplace morale, and class action lawsuits. All of which are bad for business.

Common payroll mistakes

Payroll can be a nuanced and complicated processes, and one that changes with every new law, regulation, and employee. If you’re not on top of it constantly, things can easily go wrong.

Common mistakes include:

  • employee misclassification
  • inaccurate time tracking and records
  • missed deadlines
  • uninformed employee and management behaviors

Often, the problem is as simple as poor communication. Deadlines get missed. Hours are worked but not reported. Employees and managers have different expectations about what is and isn’t acceptable.

Poor practices

Even employees with the best intentions can put their employers at risk. Motivated staff may be more than willing to skip breaks and/or put in extra hours without expectations of pay. But even if these employees don’t expect to get paid for those extra hours, employers are still on the hook for following and enforcing all wage and hour laws.

Some companies take advantage of employees like this by looking the other way and hoping they don’t get caught. But some companies are truly unaware that their employees are working off hours.

Cell phones, laptops, and other remote work technology make it very easy for employees to log additional time off the clock without anyone knowing it. Often, the employees themselves don’t realize they are doing anything wrong. But overtime mistakes can add up to big trouble for small businesses.

How to effectively manage overtime

1. Take compliance seriously

This is where it all starts. Knowing your responsibilities as an employer— and staying in compliance. Unfortunately, this isn’t something you can do one time and trust that it will be enough to take you into the future. Compliance is an ongoing process that requires constant attention.

2. Invest in payroll accuracy

Your HR/payroll department will need to be large enough and competent enough to handle your current payroll needs and stay on top of any changes. If your payroll person is also your HR person, your accountant, and your receptionist, you’re just asking for a wage and hour violation. Invest in strengthening your team or consider partnering with an outside payroll company to help. Not only do they have the resources to get it done, they have the knowledge and expertise to make sure it gets done right.

3. Avoid misclassification of employees

Misclassification of employees is one of the most common causes of labor lawsuits. And the courts don’t really care if it was on accident or on purpose. Trying to avoid overtime through misclassification of employees is never a good strategy. And if you didn’t know the rules, you should have. Pay close attention to the rules for classifying contractors, exempt, and non-exempt employees— and follow them to the letter. If you’re feeling uncertain, this is another area you can ask a payroll expert for help.

4. Communicate with your team

You’ve gone through the trouble to learn the ins and outs of wage and hour law. Or maybe you’ve found an HR consulting service to help. But do your employees know what they need to do? Make sure to spell out the details of what is and isn’t acceptable when it comes to overtime and hours worked. And let them know what will happen if they don’t follow the rules. The more clearly you spell this out for each employee, the less likely you will be to see deviations.

5. Find a time tracking system that works

If your time tracking system isn’t accurate, your payroll system won’t be accurate. It’s as simple as that. Don’t rely on employee estimates, text messages, or random time cards. Find a system that is consistent, precise, secure, and easy to use. Then, make sure you get your money’s worth by implementing it, clearly explaining how it works, and requiring everyone to use it. You may want to seek out an HR solutions provider to help you choose the right solution and ensure a smooth transition.

The benefits of getting it right

Effectively managing overtime will help protect your company from payroll and compliance violations, wage and hour fines, and class action lawsuits. This alone should be more than enough motivation to get and keep you on the right side of wage and hour compliance. But there are even more benefits to be had. Having a manageable and reliable payroll system will also keep your business running more smoothly and help you avoid unpleasant surprises.

Fewer payroll mistakes won’t just save you time, money, and headaches. It will keep your employees happier, too. Which means they’ll keep clocking in for years to come.

Struggling with benefits administration and compliance? At Combined, Inc., we’ve got tools to make it easier on your HR department, your employees, and your bottom line. If you’re looking for an employee benefits consultant that is a true business partner, Combined is here for you. RECEIVE ASSISTANCE TO SCHEDULE A FREE COMPLIANCE REVIEW, DEMO, CONSULTATIONS, AND MANY MORE SPECIAL OFFERS. CONTACT US NOW