Key Takeaway
- Companies can avoid payroll errors by understanding the causes and mapping solutions
- Ensure compliance by staying on top of local and international regulations
- Stay organized and streamline payroll with one source of truth
- Avoid penalties and fines by double checking host country’s fringe policy benefits
- Avoid filing fees by paying employees the correct amount, every time. A payroll solution can help achieve consistency.
From late payments to miscalculated pay, there’s a lot to manage when it comes to payroll.
Miscalculating pay is when companies incorrectly compensate employees for their work. Pay miscalculations can occur if organizations miss the first paycheck for new hires, deduct the wrong amount for benefits, send out inaccurate payment to employees on disability or other leaves, and more.
Put simply, miscalculating pay and other payroll errors are common, costly mistakes for companies.
With the complexities of global payroll, a holdup in one location can have a ripple effect on the entire payroll run. Read on to identify the most common payroll errors and learn about the solutions that can improve payroll accuracy.
This breakdown of time allocation in this graph can be helpful in order to understand where your payroll staff is spending their time and to identify areas where they may be able to improve efficiency.
For example, businesses may be able to automate some of the payroll tasks that are currently being done manually, such as data entry and reconciliation. This could free up payroll staff to focus on more strategic tasks, such as process improvement, instead of focusing on tasks that are related to avoiding payroll errors.
Payroll Error #1: Misclassifying employees
In the U.S., The Fair Labor Standards Act (FLSA) provides benefits and protections—overtime pay, minimum wage, and so on—for most employees. Independent contractors, exempt, and nonexempt employees, however, aren’t subject to those protections and have different legal rights. When organizations treat employees as independent contractors or as exempt, they’re misclassifying their workers.
Solution: Keep track of current employee laws and regulations
Misclassifying employees is a lot easier with employees from all over the globe, each needing to adhere to different tax codes and employment regulations. Keeping track of country-specific regulations regarding employee classification helps businesses stay compliant and avoid costly penalties.
Payroll Error #2: Incomplete records
An incomplete, unorganized payroll process can slow down business operations. Paper processes, manual data entry, or disorganized, uncentralized spreadsheets can lead to mistakes that can take months to correct, or worse, fines, fees, and legal repercussions.
If a team is using a paper system, there’s more of a chance of overlooking important action items as there are multiple sources to track and constantly update.
Solution: Consolidate all records into a global payroll solution
An integrated payroll system automates payroll workflows making error-prone processes (such as paper systems) unnecessary. An integrated platform also provides full transparency and visibility into all payroll activities, so teams can track employee benefits, payments, employee statuses, and immediately correct errors in real-time.
Payroll Error #3: Overlooking fringe benefits
Most countries have specific laws regarding extra benefits employers provide workers, also known as fringe benefits. These can include health insurance, bonuses, vacation days, pensions and more. Although fringe benefits are mostly used to attract and retain talent, employers need to keep in mind that these perks may be subject to taxation. If fringe benefits aren’t accurately reported, companies can face legal or financial consequences.
Solution: Check the host country’s government pages
Employers need to know what is and what isn’t a fringe benefit, how each benefit is taxed, how to report fringe benefits, and how to accurately calculate taxes. Your host country’s official government website will have all of the relevant, updated information on how to approach fringe benefits.
Payroll Error #4: Wage garnishment noncompliance
Wage garnishment is a legal procedure that requires employers to withhold a portion of an employee’s wages to pay for their outstanding debt. When employers receive a garnishment order, they’ll need to inform their employee of the order, garnish a fixed amount or a percentage of the employee’s earnings, and report the process. Failure to do so can result in noncompliace penalties.
Solution: Consult the experts
When wage garnishment is ordered, the employer and the employee usually receive a notice from the court or a government or state agency. Although the notice will include instructions for how to garnish the employee’s wages, employers can protect themselves against noncompliance by consulting with an attorney to understand how to comply with the order.
Payroll Error #5: Missing deadlines
Missing deadlines—whether for taxes or payroll cycles—can result in consequences from unhappy employees to filing fees. Missing payroll tax deadlines can also damage a company’s reputation in the eyes of consumers, employees, and local and federal agencies, such as the IRS.
Solution: Invest in a comprehensive payroll solution
With a comprehensive payroll system, employers can reduce the risk of missing payroll and tax deadlines. An ended-to-end payroll solution can process all types of employment, from contractors or EoR to payroll and each payment delivery will arrive time and in the correct amount.
Eliminate payroll errors with Papaya OS
Payroll can be a minefield with different team members managing employee classification, distributing benefits, recording processes and more on different platforms or spreadsheets. Without a transparent, unified approach, important details can fall through the cracks leading to fines and penalties.
Papaya OS makes global payroll simple, smart, and secure. Our team of global experts supports businesses on immigration, benefits, compliance, equity, and so on. Instead of tracking massive qualities of data from several different platforms or tools, Papaya OS brings all employer’s data into one fabric for a standardized, transparent view that’s always up to date.
For the smartest, seamless solution to common payroll errors, try Papaya OS. Schedule a demo to learn more.
FAQs
What happens when payroll makes a mistake?
There are multiple consequences for payroll mistakes. Employees may distrust their employer leading to employee churn, missed payments can harm the business’s reputation, and finally, the company can face fees and penalties for late payments. If payroll makes a mistake, it’s important to implement new processes or procedures eliminate making the same mistakes again.
What causes payroll errors?
One of the biggest causes of payroll mistakes is human error. Recording incorrect figures, underpaying or overpaying employees, deducting the wrong amount for benefits, the list goes on. These errors can result in substantial fines, employee dissatisfaction or even lawsuits if payroll is constantly inaccurate.
How do you solve payroll errors?
The easiest and most future-proof of solving payroll errors is by using a global payments platform that automates payments, provides a transparent view into consolidated data, and provides expert assistance for following international laws and regulations. A global payments platform also makes tracking payments and processes a breeze, so that if a team member does make a mistake, it can get remedied quickly.
