The 8 Biggest Payroll Errors Most Employers Make

In this article, you’ll learn about the 8 costly payroll errors most companies make. 

Payroll mistakes lead to wasted time in HR and employee dissatisfaction. Only 1 wrong digit in payroll calculation can result in disastrous consequences.

There’s more. Payroll mistakes negatively impact profitability, especially during the Great Resignation and the economic recession when finding, retaining, and motivating the right talent can be extremely hard.

Download our FREE guide to avoid costly payroll errors, assess your payroll and identify areas for improvement!

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

Payroll errors: the psychology of 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:

• Have significant psychological consequences 
• Motivate employees’ behaviors 
• Influence employees’ perception of their workplace
• Impact employee satisfaction and retention

Imagine this: 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 changing their job.

Therefore, it’s in your interest that your employees are satisfied with what they’re paid and how they’re paid.

The 8 biggest payroll errors

Most payroll errors result from poor payroll processing (entering data into payroll software, calculating wages, processing payroll taxes, and so on).

In short, payroll processing is 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.

Here’s the most common (and costly) payroll mistakes.

#1 payroll error: wasting time and money on manual payroll processing

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

Now consider HR & Payroll departments and imagine:

• Hundreds of files, hard copies, and spreadsheets saved in multiple places
• Constant changes: employee rotation, changing pay rates, new contracts, amendments, and terminations
• Complicated calculations, such as calculating overtime pay and bonuses
• Missing employee data
• Never-ending manual work that wastes too much time and resources

Welcome to the world of HR and payroll in many organizations.

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

The reality 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.

Watch the video below about why employee engagement matters. 

#2 payroll error: miscalculating pay and misclassifying employees

Today, we’re increasingly dealing with payroll transfers that are more complicated than regular monthly transfers. As a result, it’s much easier to make payroll errors than ever before. 

Consider the complexity of calculating: 

• Pay for freelancers, hourly employees, or frontline workers earning different amounts at different times
• Bonuses, overtime pay, commissions, deductions, and vacations
• Flexible pay when employees want access to their earnings whenever they need it

In complex payroll cases, many things can go wrong. Unfortunately, it often takes only 2 payroll errors for an employee to start looking for another job.

Miscalculating pay can result in:

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

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

Now consider these facts:

• 49% of US workers will start looking for a new job after experiencing only 2 problems with their paycheck (The Workforce Institute, Kronos Incorporated).
• It takes only 1 wrong digit in payroll calculation to result in inaccurate paychecks and potential tax errors.

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

Employee misclassification can:

• Affect an employee’s wages and benefits
• Cost the government, which can result in an audit

#3 payroll error: wasting time and money on fixing payroll errors

Most employers know this situation. Workers claim that they didn’t receive enough money. Maybe you made a payroll mistake: then you need to correct it. Or maybe you didn’t, perhaps your employee is wrong: then you need to check it.

The bottom line: businesses can’t afford to tolerate incorrect payments and poor payroll. First, checking and correcting your calculations can be 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).

But why take your precious time to resolve payroll errors instead of preventing them from happening in the first place?

With the right payroll software, 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.

Payroll software helps 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

Ready to take your HR strategy and business to the next level? Plan 2023 with this HR Calendar and improve employee retention!

#4 payroll error: low flexibility of your payroll system

Payroll processes are relatively straightforward when employees on permanent contracts receive the same salary every month. However, 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).

Complex payroll cases require flexible systems and modern technology capable of handling multiple variables and processing the fast-changing payroll data. That said:

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.

Many employees want their salaries on demand. Paying your employees once per month is outdated and can negatively impact employee retention.

Piotr Smolen, Co-Founder at Symmetrical

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 can give you a headache. Especially that non-compliance or incorrect filing can result in fines and penalties.

Therefore, you need a smart and flexible system to ensure you stay compliant in non-standard situations and at all times. For instance, with automatic tax filing and updates, you’ll feel confident your taxes are filed correctly and on time.

Download our Gig Economy Guide to get ready for the future of work and new employment trends!

#5 payroll error: missing payroll deadlines

Staying on top of payroll-related deadlines is critical. No company wants to mess with paying salaries or payroll taxes. However, missing such deadlines is more common than you may think.

So first, you must pay your employees on time. If they don’t receive their hard-earned money consistently and when expected, 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. For example, after a year of processing payments and taxes, you must send employees all the necessary tax forms. 

Failing to do it on time isn’t just inconvenient for employees. It can also cost your business a lot of money and legal trouble. You don’t want to risk it. 

You must also pay the correct tax rate and remember that they’re subject to change. 

#6 payroll error: poor payroll records management

Payroll records are all documents and data related to paying an employee, such as withholding forms, payroll taxes, hours worked, gross wages, pay rate, benefits, deductions, or time off.

Each employee’s payroll record should include the following documents*:

• General information (employee name, birthdate, address, occupation, etc.)
• National insurance/social security number
• Tax withholding forms
• All necessary employment-related forms
• Time and attendance records 
• Total hours worked within a given time frame
• Time off history
• Pay rate
• Additional wages, such as commissions, bonus pay, overtime earnings
• Pay slips
• Expense reimbursement information
• Benefit and deduction information
• Employer contributions
• Termination documents (if applicable)
• Final paycheck information

*The list is not exhaustive.

Employers must keep payroll records for every employee. Having incomplete or inaccurate records is a costly mistake. You risk miscalculating pay, misclassifying employees, and more.

Unfortunately, managing employee records isn’t easy. Workplaces with high employee rotation may know this pain particularly well. Inputting and updating payroll data manually is a never-ending story. There’s also another risk: errors that can result in costly penalties and other repercussions.

Interestingly, many companies still keep paper copies or spreadsheets. But let’s be honest: they aren’t very practical. Additionally, they can end up in the wrong hands. Unauthorized access to payroll data can result in your company losing money, clients, and reputation.

The right HR and payroll software will help you:

• Access all of the documents you need in one place (at any time, any place)
• Organize your payroll records and find information easily 
• Download chosen reports at a click
• Keep your data secure, especially sensitive and confidential information
• Prevent many errors, like payroll miscalculations
• Stay organized and compliant
• Keep your organization safe in case of future audits

#7 payroll error: having a poor payroll process

Businesses struggle to retain employees because of poor payroll, which contributes to a negative workplace environment. This often results in a bad employer reputation. And who would want to work for a company that fails to pay employees smoothly?

Problems with keeping employees and attracting new talent are costly. Consider the hassle and costs of recruiting, interviewing, onboarding, and training new candidates.

That’s why, for better talent attraction and retention as well as keeping business costs down, businesses need a modern and reliable payroll system.

Such a system will also help you avoid messaging your payroll provider to ensure they have up-to-date and correct payroll data. Avoid this inefficient process with a tool that can instantly detect incorrect data.

#8 payroll error: payroll processes slowing down your growth

Manual processes are not business drivers. Quite the contrary, they cost organizations too much in the long run and slow them down. One example is managing payroll. 

The reality is that manual work costs you more than just time. Consider this:

1. You need to use your HR for both operational and strategic purposes
2. You need a supervisor of the whole process
3. All those employees are often busy with other tasks and projects

On top of this, complicated calculations increase the cost of payroll processing and the risk of errors. This impacts your HR team as they have less time to focus on what drives your business: people.

There’s no doubt: an inefficient payroll process slows down your business growth. 

Does it make sense to use your HR team’s time on manual data entry, salary calculations in Excel spreadsheets, correcting payroll errors, and dealing with high employee turnover? Is it a good idea to give up the benefits of the innovative technologies of the 21st century? Can your company afford (more) problems with payroll? You probably know the answers to those questions.

Anna Jagiello, Digital Product Expert

Get your payroll right in the current reality

Ensuring your payroll works correctly (and smoothly) is essential in the Great Resignation. Even though we’re living during the economic downturn, employees continue to leave their jobs.

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 culture

Compensation is still at the top, but like never before, employees value work-life balance, flexible

schedules, advancement potential, and the ability to work remotely.

To attract and keep employees in the current reality:

• Offer them a positive onboarding and workplace experience
• Make sure they’re satisfied with what and how they get paid
• Treat them holistically and recognize their personal interests, passions, goals, dreams, and struggles
• Show that you value them as people 

To do that, you can’t waste time on manual, repetitive work and processes that tools can do. 

That said, 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.

Engage your employees with success throughout 2023 with our 2-in-1 HR Calendar & Planner!

The 8 biggest payroll errors: conclusion

To minimize the risk of payroll mistakes and errors, you need a smooth payroll process. Doing payroll manually is too risky these days. Luckily, there’s an alternative to this outdated, inefficient and often inaccurate practice.

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

• Reduce payroll mistakes and improve your payroll system
• 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
• Free up time for strategic and employee engagement activities

The right payroll solution makes payroll management easy. Automation combined with expert support makes things easier. It’s so simple.

Ready to take your payroll (and business) to the next level? Learn more!

Sources

8 Must-Have Benefits of Automated Payroll
Common Payroll Mistakes
How Global Payroll Can Meet the Challenges of the Great Resignation
The Great Discontent: 2021 Worker Survey (US)
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