8 Costly Payroll Errors And How To Avoid Them [FREE Guide & Payroll Checklist]

Payroll errors negatively impact profitability and lead to wasted time in HR and employee dissatisfaction. Payroll errors are unfortunately common – especially in startups – but fortunately preventable. 

The good news is you can avoid most payroll mistakes and errors. Our practical 15-point payroll performance checklist will help you identify areas for improvement.

*The information, data and guidance provided in this guide is for general information purposes only and does not constitute professional or legal advice.

Payday and its impact on your business

Paydays are much more than financial tasks and bank transfers. They can evoke emotions from pleasurable chills and excitement to bitter disappointment.

No wonder: making an income is the main reason most individuals seek paid employment.

As a result, paydays:

• Motivate employees’ behaviors
• Influence employees’ perception of their workplace
• Impact employee satisfaction and retention

What can happen if you pay your employees late or underpay them by mistake? If your employees’ (lack of) income affects their security, it will impact their productivity. They can even consider quitting.

Therefore, make sure that your staff are satisfied with what they’re paid and how they’re paid.

It goes without saying: payday is directly related to profitability and the success of your business. Thus, managing your payroll in a smooth, smart, and fair way is critical.

The Great Resignation and quiet quitting

The Great Resignation is a shortcut for the historical quit rate happening on the job market as a result of the coronavirus pandemic. Many employees are deserting jobs they don’t enjoy, where they don’t feel respected, or where the work doesn’t fit in with their personal lives.

The term “quiet quitting”, in turn, refers to employees who show up at work to do the bare minimum. According to some people:

Therefore, even though the recent “Great Layoffs” are getting a lot of attention, they don’t represent the overall job market. We may be living during the economic downturn, but many employees continue to leave their jobs or “quit quietly”.

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According to numerous employment and HR statistics, employees are searching not only for a paycheck, but also for joy, happiness, respect, flexibility, and healthy employee experiences. Employers must address these needs so they don’t put their companies at risk.

What is essential for employees in the Great Resignation?

• Compensation
• Flexibility, including flexible work hours and remote work
• Work-life balance
• Mental health and well-being benefits
• Meaningfulness in work
• Career advancement
• Positive company culture

Compensation is still the most crucial factor for employees. However, like never before, employees value work-life balance, flexible schedules, advancement potential, and the ability to work remotely.

How can companies adapt to the Great Resignation?

The Great Resignation has various consequences for businesses and HR departments, for instance:

• The high demand for talent and specific skills
• Challenges with employee engagement and retention

To attract and keep the right talent, companies must offer employees a positive onboarding and workplace experience.

Therefore, make sure your staff is satisfied with what and how they get paid, but also make time to address other needs. In other words, treat your employees holistically. To make time for that, you can’t waste time on manual, repetitive work and processes that tools can do.

For this reason, payroll has a critical role in employee retention. It’s also an area where you can automate unnecessary work. The right HR & payroll provider will help you achieve that.

The 8 biggest payroll mistakes

Payroll mistakes result from poor payroll processes. Payroll processing includes various tasks, such as entering data into payroll software, calculating wages, or processing payroll taxes.

In short, it’s about ensuring employees get paid correctly and on time. Unfortunately, this is not something employers are capable of getting right every time and/or in every case, according to various payroll statistics, facts, and data.

Let’s start with the most common payroll errors and mistakes. Then we’ll discuss the ways of solving and preventing them.

#1. Wasting time and money on manual payroll processing

Imagine if salespeople spent a lot of their time managing documents and processing orders instead of pursuing sales. It wouldn’t take long to see the impact of this on the company’s bottom line.

Now think about HR & Payroll departments and consider:

• Hundreds of files, hard copies, and spreadsheets saved in multiple places
• Constant changes: changing pay rates, employee rotation, new contracts, amendments, and terminations
• Complicated calculations, such as calculating overtime pay and bonuses
• Missing employee data

Entering, verifying, and managing payroll data manually is tedious and time-consuming. Unfortunately, the impact of this excessive manual work is usually more difficult to spot compared to hard numbers in sales departments.

However, wasted time in HR has a long-term impact on your company’s profitability, especially at a time when retaining employees can be hard.

The truth is that your HR should focus on what counts: your employees. HR should focus on building a happier workplace where “employee turnover” sounds like a foreign word.

Therefore, to reduce manual work and paperwork in HR, consider creating a payroll master file for automation. It will free up time for strategic HR activities and boosting employee engagement.

#2. Miscalculating pay and misclassifying employees

In today’s business world, we’re increasingly dealing with complex payroll transfers (vs. regular monthly transfers). For example, consider the complexity of calculating pay for freelancers, hourly employees, or frontline workers earning different amounts at different times.

The bottom line: in complex payroll cases, many things can go wrong. As a result, it’s much easier to miscalculate pay and make payroll errors than ever before.

Unfortunately, it often takes only 2 payroll errors for an employee to start looking for another job. Thus, you don’t want to mess up with someone’s pay.

49% of US workers will start looking for a new job after experiencing only 2 problems with their paycheck.

The Workforce Institute, Kronos Incorporated

Payroll errors cost companies money and time and lead to employee dissatisfaction. Still, companies paying their employees late and/or incorrectly is common.

Based on the survey by SD Worx:

• 44% of 4,000 European employees surveyed had been paid late by their employers
• Almost half of those that had been paid late had also been paid incorrectly
• Almost 80% of employees that had been paid incorrectly identified the issue themselves
• 44% of respondents would consider quitting their jobs after being paid incorrectly

Miscalculating pay can result in:

• High costs
• Poor reputation: being perceived as a financially unstable employer with poor (payroll) management
• Employee dissatisfaction and lost trust in the workplace
• Low employee engagement and retention
• Difficulties in attracting new talent

Employee misclassification is another common and costly payroll error, especially when working with freelancers or independent contractors.

#3. Wasting time and money on fixing payroll errors

Businesses can’t afford to tolerate incorrect payments and poor payroll. First, checking and correcting your calculations is usually costly and time-consuming. Second, your employees identifying payroll errors themselves is a red flag:

• What if many employees are paid incorrectly and aren’t aware of it?
• What if they spot errors after a few months?
• How likely is it that they will want to stay with their employer?

If payroll errors occur, fix them promptly so you minimize employee dissatisfaction and avoid penalties. Unfortunately, low-performing organizations can take around 5-10 days to resolve a payroll error (APQC).

For this reason, instead of taking your precious time to resolve payroll errors, do your best to prevent them from happening.

With the right payroll services, payroll teams can identify problems that may negatively impact the payroll cycle’s completion. This way, they can solve them before the payroll is run.

Modern payroll services help to:

• Minimize the risk of human/calculation errors, double entries, and delays in payroll processing
• Save your team the hassle of correcting mistakes
• Reduce your existing payroll costs
• Make informed business recommendations based on accurate data and reports

#4. Low flexibility of your payroll system

Payroll processes are relatively straightforward when employees on permanent contracts receive the same salary every month. But, as already mentioned, more complex payroll cases are rising.

They’re especially common in fast-growing startups and in the gig economy sector (a.k.a. digital platform work) that is constantly growing.

Currently HR and payroll processes are well-suited for unchanging things in a stable world. However, such a world doesn’t exist and we’re operating in increasingly volatile environments. From the payroll perspective, it’s not the world of straightforward payroll transfers and calculations anymore.

Piotr Smolen, Co-Founder at Symmetrical

Complex payroll cases require flexible systems and technology capable of handling multiple variables, as well as systems that address modern complexities and can process the fast-changing payroll data.

That said, it’s worth investing in payroll technology to get your payday right.

Consider this. Flexibility is a top factor that could prevent employees from leaving an employer. Thus, many employers cite flexible workplaces as their top retention strategy. They’ve started experimenting with different solutions to address labor shortages.

For instance, to make jobs more appealing, some retailers offered to pay store workers daily rather than weekly. To provide flexible pay like that, a flexible payroll solution is a must.

Flexibility is also required when companies expand globally and hire remote employees. Keeping track of the latest employment regulations, taxes, and policy changes in different countries is critical. For this, you need a smart and flexible system to ensure you stay compliant in non-standard situations and at all times.

Download our Gig Economy Guide to save money, stay flexible, and prepare your company for the future of work!

#5. Missing payroll deadlines

Staying on top of payroll-related deadlines is critical. No company wants to mess with paying salaries or payroll taxes.

So first, you must pay your employees on time. Otherwise, they’ll lose trust in your company and will consider quitting.

Do you employ freelancers and other gig workers? Remember that it’s a deal breaker for many gig workers if they don’t get paid almost immediately. The effectiveness of payroll processes has an enormous impact on that.

Symmetrical’s payroll solution can benefit the gig sector and significantly reduce waiting time for pay. As financial liquidity is important for all employees, this significantly improves employee satisfaction.

Second, be careful about missing tax deadlines. Otherwise, it can cost your business a lot of money, employee dissatisfaction, and legal trouble. You must also pay the correct tax rate and remember that they’re subject to change.

To learn about the remaining payroll errors and mistakes, download our FREE payroll guide.

How to avoid payroll mistakes: 5 practical solutions

In today’s dynamic workplace reality, it pays to avoid outdated HR and payroll systems. Choosing accurate, flexible, and adaptable systems is even more important when your business and workforce are growing.

Here are some actionable recommendations to help you avoid payroll errors.

#1. Streamline your payroll process

Ensure your payroll process works smoothly, and your system is flexible. Remember to meet important deadlines or to send forms on time. Most payroll solutions have alarms and reminders to help you avoid missing important details.

Go through and spring-clean your existing records. Use a proven system to gather all the relevant details about your employees.

Use a payroll effectiveness and efficiency checklist to identify any potential glitches.

#2. Take care of your payroll documentation

Ensure your payroll admin has all the necessary data, and processes to handle the payroll process properly.

• Keep backup records if something happens to the original files/your device or software crashes.
• Only allow authorized people to have access to employee payroll records.
• If you have a dispute about payment/employment with an employee, keep all payroll records until the dispute is resolved.
• You must keep payroll documents for a set time (based on legal regulations). Keeping them for longer than required can put business owners at risk. Therefore, destroy them after the retention time frame to prevent the misuse of confidential data.
• Keep track of which payroll records you’ve destroyed and when.

If you have doubts about the accuracy of your payroll-related matters, e.g. records and deductions, consult payroll experts (HR & payroll specialists, accountants, tax consultants, etc.).

#3. Solve payroll problems quickly

If payroll problems/errors occur, resolve the issues immediately. If necessary, report them to relevant entities.

In the case of minor payroll errors, you can usually do one of the following:

• Cancel the payroll immediately, make updates/corrections, and reprocess it.
• Run an additional manual payroll for the affected employees only (with the necessary adjustments).
• Make adjustments on the next payroll to counteract previous mistakes.

Always do your best to prevent and spot payroll errors before they happen. Using human eyes and processes alone for this may be too risky. So consider investing in HR & payroll software.

#4. Solve payroll problems before running payroll

If you have access to payroll software, run a few key reports before processing payroll. This will help you catch and prevent mistakes.

Consider running the following reports:

• Deductions summary
• Cash requirement (how much money your company must have available to pay payroll)
• Payroll register (all payroll information in a summary format)

Furthermore, to prevent payroll errors:

• Do your research.
• Create a payroll checklist (for yourself and your administrators) to keep track of all the process steps.
• Keep a list of all the changes made during a given pay period. Ensure that the system is up-to-date.

#5. Use automation and AI for better data collection and decision-making

HR and payroll need better data for better decisions. Unfortunately, HR departments have lagged behind in this regard.

According to the study by Capita Resourcing:

• 25% of businesses say their HR and recruitment teams are the least proficient at collecting, analyzing, and acting on data.
• 4 in 10 said that the ineffective use of data was likely to have a negative impact on candidate and employee experience.

Luckily, AI and automation can help with a big data gap in HR. AI can help HR professionals analyze key data and identify trends as well as pain points. This way, issues can be addressed proactively.

For instance, high resignation rates among employees from particular departments or pay grades can highlight the areas that need particular focus.

Payroll performance checklist

Before taking steps to change or improve your payroll system, you must understand the effectiveness of your current process. Honest answers to some crucial questions are a good starting point.

Check out the payroll performance checklist below.

HR technology vs. employee retention

HR technology is a hot topic. First, the global HR software market is growing. Second, the significance of technology in HR is growing.

Automation and AI help HR by improving core processes as well as interacting with employees. For example, chatbots are a good way to provide immediate answers to common questions employees ask about general organizational processes.

Furthermore, employees expect self-service capabilities in the current climate. People want to have access to essential documents like payslips and own their personal information.

This is not to say automation should entirely replace human interaction. Quite the contrary, automation should help with specific (usually repetitive) tasks so HR departments have more time for those that require the human touch.

This is essential in the time of the Great Resignation (quiet quitting), but also in the economic recession.

Consider automated payroll. It can help attract and retain talent by:

• Getting the basics right, like paying your staff accurately, on time, and with full payslip information
• Automating data entry so you can focus on boosting employee engagement
• Giving employees both more flexibility and control over when and how they get paid with tools like self-service payroll or salaries-on-demand

Automated payroll services

More than 33% of business owners still use spreadsheets to manage their payroll. But there’s an alternative to this outdated and inefficient manual practice.

Creating a payroll master file for automation will help you:

• Simplify and improve your payroll system
• Reduce payroll errors
• Lower business costs
• Speed up wage calculations
• Increase efficiency
• Make it easy to run reports, file taxes, and distribute payslips
• Facilitate the easy flow of data between departments
• Ensure the security of sensitive data
• Guarantee compliance
• Solve questions more quickly
• Improve employee experience
• Solve retention problems
• Free up time for strategic and employee engagement activities

Make time for the things that count. Think about how you can automate repetitive tasks to be there for your employees when they need you.

Payroll errors: conclusion

Employee retention in this unprecedented market is the top challenge for many HR departments. They need more innovation and automation, and payroll is one area that can be a game changer.

The right payroll service ensures you pay your employees accurately and on time. It helps you reduce payroll mistakes to a minimum. It also addresses changing employee needs by giving employees more freedom and flexibility.

Symmetrical offers easy, automated payroll services with the support of a dedicated team of payroll experts to help you:

• Put an end to payroll and HR chaos by automating tedious tasks such as manual data entries or calculations
• Hire and pay people in a cheaper, easier, and more automated way
• Connect all your HR-related systems and integrate them into one automated process

Sources

8 Must-Have Benefits of Automated Payroll
Common Payroll Mistakes
How Global Payroll Can Meet the Challenges of the Great Resignation
8 Definite Benefits Of An Automated Payroll System
6 Ways Global Payroll Can Meet the Challenges of the Great Resignation
What to Expect Post the Great Resignation in 2023
Automated Payroll: Benefits
Employee Payroll Records
HR automation in 2023
69% of UK workers ready to move job
Is salary important to workers?
The Risks of Poor Payroll for Businesses
Top 5 Ways Payroll Automation Will Benefit Your Business
7 Ways Payroll Automation Is Beneficial for HR
How to Prevent Common Payroll Processing Mistakes