Payroll, no doubt how big or small a team, can be a time-consuming and hectic process. Even a single mistake can lead to huge trouble like the employees being underpaid. Apart from this, accurate payroll is very important to keep up with new laws and stay compliant. Whether your team is dealing with payroll mistakes right now or just wants to avoid them in the future, here is a blog that will help with common payroll errors and their solutions.
Misclassifying employees – For every company, it is important to classify team members, regardless of the team size. This distinction determines whether you tax their wages. While things can be very easy with the help of payroll software India, doing things manually can be very troublesome. For example, if someone is classified as an employee, it becomes important to withhold income taxes and pay Social Security, Medicare, etc. Similarly, when an employee is classified as an independent contractor, there are very less withholds that need to be undertaken and you don’t have to pay any taxes on their wages. According to the figures, over 10-30% of employers misclassify employees as independent contractors. This problem can be handled with the help of Form SS-8, the Classification Settlement Program, or the Voluntary Classification Settlement Program.
Overpaying or underpaying employees – Payroll, no matter how easy it sounds, can be very confusing as this doesn’t involve calculating the number of hours or days worked, but it also involves a lot more like paid time off, deductions, etc. Using the traditional payroll management methods like manual payroll can make things more complex. Since there is so much of data to handle, it is very easy to accidentally pay your employees the wrong amount. In case the company ends up overpaying the team, the same amount can be subtracted according to the Fair Labor Standards Act (FLSA) from the employee’s next pay check. But it is very important to communicate the same to the employee. So, before you deduct the amount, it is important to tell them about how much you overpaid them and ask them to sign an acknowledgement for the deduction.
Miscalculating overtime wages – When the company has non-exempt employees working longer than 40 hours per workweek, it becomes important to pay them overtime wages. This is mandatory according to Federal law, which states that the company must pay employees no less than one and a half times (or 150% of) their regular rate of pay for each hour worked above 40 hours. It is important to remember that the rule is not the same in all states. For example, some states may require a higher overtime wage rate or have daily overtime requirements. Failing to pay additional amounts to the employees can result in various penalties and interest. The best way to avoid miscalculating overtime wages is to be sure about the difference between exempt and non-exempt and classifies your employees correctly. It is important to know the state and local overtime laws.
Missing tax deadlines – As a professional HR, one must know that the process of payroll processing involves various moving parts, and there are a lot of deadlines to keep track of as a result. In case you fail to file the taxes at the right time, there are various penalties, fees, and interest that can be applicable. For example, each month that your tax payment is late, over 0.5% penalty can apply to your unpaid tax amount. The same penalty can increase depending on how late you file your return. The best way to avoid missing timelines is to pay your taxes on time or get the help of a payroll software in hyderabad that will send you timely notifications about the timelines. Additionally, using the IRS’s Online Tax Calendar can be a great support to keep up with the timelines.
Using an incorrect pay frequency – This is one of the most common problems faced by various businesses across the world. Of course, the rules may vary according to the state. For example, Federal law doesn’t make it mandatory for businesses to pay employees at a certain frequency. But since most states make it mandatory, it becomes important for businesses to pay employees at least weekly, biweekly, semi-monthly, or monthly. The best way to ensure paying employees as per the frequency is to ensure changing the frequency as per the state’s requirements. So, you can simply propose a new pay frequency and double-check your state’s legislation to ensure it’s compliant. It is important to inform the team members about the upcoming pay frequency change well in advance.
Not keeping payroll records – Another common payroll problem being faced by global businesses is not keeping a record of the payroll. How well you keep a record of payroll determines the process followed for payroll management. The amount of time required to keep a document may depend on the type of process being followed and the type of documents. According to professionals, it is suggested to keep a record of your employment taxes for at least four years after filing the 4th quarter of the year. Similarly, information like hours worked, pay rates, payroll dates, etc. needs to be preserved for at least three years. To avoid the problem of not keeping a record of payroll, gather your documents and store them securely. Using digital methods is always the best way to preserve records, as manual methods can be very time-consuming.
Whether you are running a small business with a few team members or a multi-national organization, it is important to ensure taking good care of payroll management. While having a team of HR professionals can be a good option for some companies, when the budget is less and still you want to ensure proper payroll management, it makes sense to choose a good payroll software India to avoid the common problems as these software are equipped with the advanced technology for better outcomes.