Your team worked overtime to meet the year-end close deadline. They sang songs of good cheer about the final payday before the gift-giving season begins. But holiday joy became dispirited when employee paychecks reflected far less than expected.
Your payroll department left for the day, so now what? You need to fix this issue as soon as possible.
Don’t look away believing this couldn’t happen to you. Mistakes with payroll occur more than you know. This article addresses the five most common payroll errors that affect employee compensation.
What Is Employee Compensation?
Employee compensation is the total benefits received by company personnel for services rendered. A typical benefits package includes:
- Salary and wages
- Paid leave
- Employer-subsidized health insurance
- Retirement plans with employer contributions
- Other employer-sponsored incentives
Candidates often accept a position based on the employee compensation and benefits offered.
Cost of Employee Compensation
Employer cost for employee compensation varies by industry and company size. The Bureau of Labor Statistics (BLS) reports the latest difference between the industries. The average cost per hour for state and local governments is $53.59, and $36.64 for private.
Employers process payroll according to state payday requirements and company policy. Some employers cycle payroll daily or weekly. Others may opt for biweekly, semimonthly, or monthly.
An employee’s pay depends on whether they receive hourly wages, base salary, or commission. Some employees also receive bonuses. No matter the scenario, most employees know how much they should receive each pay period.
The best way to ensure accurate payroll is by enlisting payroll services. Otherwise, it’s likely you’ll encounter disgruntled employees or the IRS.
1. Misclassification of Employees
When you have different classifications of employees, incorrectly identifying them can wreak havoc. And those troubles will most likely extend beyond payday. A not so simple error could result in the denial of benefits owed by law.
2. Mismanaged Payroll Records
Trying to manage payroll records for any number of employees could prove daunting. You might end up with mismatched employee names and Tax ID numbers. And you may lose track of employee work hours and missed payroll deadlines.
Your company could find itself in violation of the Fair Labor Standards Act (FLSA).
3. Missing Tax Forms
You must issue all employees and independent contractors annual tax forms. For every year worked, employees should receive W-2s or 1099s in January of the following year. For W-2 employees, these tax forms contain an account of taxable income and tax withholdings.
Missing and incorrect tax forms could cause employees to file late taxes and incur penalties.
4. Incorrect Paycheck Garnishments
Some employee’s pay gets garnished to fund government-mandated payments in arrears. As their employer, it’s your responsibility to ensure this happens on time. These details are more likely missed if you don’t use payroll services.
5. Late Business Tax Payments
Misclassified employees, mismanaged payroll, and incorrect payroll garnishments cause a miscalculation of business tax payments. As a result, you may underpay taxes to federal and state agencies. And your company could incur tax penalties.
Incorrect taxes create underfunded unemployment insurance and workers’ compensation.
Avoid Common Payroll Errors
You have dedicated employees who deserve to receive accurate paychecks on time. Don’t fall victim to these common payroll errors. They could cause employee compensation issues you’ll find it hard to recover from.
If you found this blog helpful, check out our other informative articles.