Payroll management is a necessary process for every business. However, paying employees accurately and on time requires tremendous work. Whether using payroll software or processing manually, an ineffective solution can create more work for your team.
This article will help you understand and solve common payroll problems, giving you confidence and control to create a quality payroll process.
Common Payroll Process Issues
Managing payroll processing is complex, which can lead to many issues. Many factors must be considered to ensure workers are paid accurately. These factors include compensating different employee types correctly and withholding the appropriate deductions, like health insurance, from each paycheck.
Human resources and payroll professionals have so much to consider that 69 percent of employers have payroll data issues, which can lead to errors. Here are some of the most common payroll mistakes made:
1. Miscalculated Overtime
Miscalculating overtime can be costly, with the penalty being 100 percent of the overtime pay owed to the employee. Civil penalties can reach up to $1000 per violation, in addition to any state penalties. The Department of Labor (DOL) mandates that an employee’s overtime rate should be time and a half of their regular rate of pay, making accurate calculations crucial. These penalties can significantly impact a company’s financial health and reputation.
However, an employee’s classification determines whether they qualify for overtime pay. Non-exempt employees are not exempt from the Fair Labor Standards Act (FLSA) provisions. Therefore, non-exempt employees are entitled to overtime wages for hours worked in a week greater than 40 hours.
Exempt employees are exempt from the requirements of the FLSA because of how their role is classified. Exempt employees are typically not eligible for overtime.
2. Payroll Tax Non-Compliance
Employers are responsible for administering tax forms to employees, such as Form W-2 and 1099s. HR Managers must stay current with ever-changing legislation, federal, state, and local tax rates and wage requirements. Furthermore, employers must conduct regular audits of tax information so they do not pay unnecessary non-compliance fines.
Payroll tax compliance can be complicated and overwhelming, feeling like a full-time job. In fact, 40% of small to mid-sized businesses face IRS penalties related to incorrect payroll filings and penalties for inaccurate or late payroll tax payments.
3. Employee Misclassification
Correctly classifying employees in your payroll system is critical to payroll accuracy. An employee’s classification determines many things:
- Eligibility for certain benefits
- Tax forms they receive
- Wages owed
- Amount of paid time off they’re allowed
- Payroll taxes to be paid by an employer
In some instances, employers determine employee types based on the term of the role and the hours an employee works. Generally, there are three standard employee classifications:
- Full-Time Employees: These employees work an average workweek for an organization. The FLSA has set 40 hours a week before a company is legally required to pay non-exempt employees overtime wages. Therefore, an employer may choose this as the number of hours needed for a full workweek. Full-time employees are entitled to certain benefits as mandated by state and federal laws.
- Part-Time Employees: Generally, part-time employees work 30 hours per week or less and may not follow a regular schedule. These employees may qualify for some benefits depending on the number of hours they work during the week.
- Temporary Employees: Also known as contract workers, temporary employees can work full-time or part-time hours. However, the length of time they work for a business is usually short-term, which is why they are considered “temporary.” Typically, employers misclassify employees as contract workers, which is when legal action might be taken.
It’s also important to correctly classify exempt and non-exempt employees. Hourly employees are typically considered non-exempt, while exempt employees typically hold management-level roles. Different federal and state regulations exist for exempt employees, non-exempt employees, and independent contractors. Otherwise, a business could face significant IRS penalties.
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How to Improve the Quality of Your Payroll Process With Technology
Paying your employees is a time-consuming, error-prone process. It’s even more so if you’re using payroll technology requiring data flow between multiple systems or processing manually. With so many factors to consider and issues that can arise, how can you improve the quality of your payroll process?
Partnering with a provider that offers quality payroll software and tax compliance services can make a significant difference in your operational efficiency. Automating your payroll process saves time, maintains payroll tax compliance, and accurately pays your employees. However, choosing the right payroll partner can take time and effort.
Let’s discuss some factors to consider when choosing the right payroll technology for your needs.
Integrate Your Existing Systems with Payroll
Integrating your existing systems with payroll is a critical step in enhancing the quality of your payroll process. This integration ensures seamless data flow and reduces the chances of errors that can occur due to manual data entry, providing reassurance about the accuracy and efficiency of your payroll process.
For example, integrating your accounting and financial services platform with your payroll services will not only synchronize your payroll and finance data but also enhance accuracy, streamline operations, and provide comprehensive insights for more informed decision-making. This alignment allows for real-time expense tracking, seamless reconciliation of payroll accounts, and a clearer view of your organization’s financial health.
With consistent, up-to-date financial data across systems, you can reduce errors, improve compliance, and make strategic decisions that drive business growth.
Conduct Payroll Audits
Conducting regular payroll audits is an effective way to maintain payroll quality. Audits help identify discrepancies, ensure compliance with tax laws, and verify that employees are correctly classified. They can also detect fraudulent activities and save the company from potential financial losses. By regularly reviewing payroll records, businesses can verify that all transactions are accurate and transparent, which not only protects the company from legal and financial repercussions but also builds trust with employees.
Additionally, audits provide valuable insights into payroll processes, allowing companies to streamline operations, improve efficiency, and implement best practices. Regular audits also guarantee that the payroll system remains up-to-date with the latest regulations and industry standards, further safeguarding the organization’s financial health and operational integrity.
Leverage Payroll Automation Workflows
Regarding quality payroll technology, you want a solution that automates and streamlines your entire payroll process. Look for a system that has a step-by-step workflow for processing reliable payroll. This approach allows you to verify employee time, incomes, and deductions are accurate, providing relief from the tedious and time-consuming task of data entry.
Some payroll solutions even provide built-in automated processes to highlight errors and validation rules so you can proactively correct any issues. This configuration lets you fix mistakes like potential employee overpayment before payroll is processed. This type of workflow automation creates a more transparent payroll process. You can reduce the time you spend processing payroll from days to hours.
Use a Unified and Secure Database
Your payroll process is only as good as the data you’re using. Pulling data from multiple systems or manually using spreadsheets is time-consuming and prone to errors. Look for a solution that stores employee information in a unified database.
Using a unified and secure database for your payroll process ensures that your information is accurate and reliable, giving you peace of mind for more effective payroll processing. It also simplifies data management, reduces the risk of errors, and provides a single source of truth for all payroll-related information.
Furthermore, a payroll provider has security protocols in place to protect your employee data, including:
- Using encrypted servers and conducting audits like SOC 1 Type 2 for security controls that meet industry standards.
- Hosting servers in trusted data centers that use redundant power and backup generators for minimal disruption in the event of a natural disaster.
- Leveraging strict access controls like role-based configuration and two-factor authentication so that only authorized users access data.
A unified payroll system makes information easily accessible to other areas of your business while security protocols protect data integrity.
Utilize Payroll Tax Compliance Services
Many payroll providers offer tax compliance services. These offerings include the payroll tax compliance department, which operates as the reporting agent on your behalf. Access to a team of payroll tax compliance experts is an effective way to improve the quality of your payroll process.
This approach ensures the accuracy and timeliness of payroll tax payments and filings. A payroll tax compliance partner can further reduce non-compliance risk with automatic tax table updates and help with year-end processing. You can focus on more strategic tasks without poring over payroll tax guidelines.
Quality Control for Quality Payroll
Handling payroll is a crucial part of an organization’s processes. Improving the quality of your payroll process starts with having the right payroll software. Automating pay cycles helps minimize errors and eliminate common issues with overtime and payroll tax non-compliance.
Partnering with a provider that offers quality payroll tax compliance services will alleviate the burden of keeping up with legislation and tax tables. Using a payroll platform with a unified, secure database allows you to maintain control of your company’s sensitive information. Data is always accurate with this all-in-one approach.
Streamlining your payroll process opens the door to a more strategic role in your company. You take back valuable hours in your day to use for budget forecasting, recruiting, and employee engagement. Investing in the quality of your payroll process provides an ROI that impacts your entire organization.
How APS Can Improve Your Payroll Process
APS Payroll has been in the payroll industry for over 25 years. We started in 1996 as a tax compliance and payroll services provider. Since then, we have grown into an all-in-one payroll and HR provider.
Today, we offer everything from core HR services to time and attendance tracking. Our software helps customers remain compliant and reduce their payroll processing time from days to hours while providing exceptional customer support.
Our mission is to make payroll and HR easier for our customers by providing the quality payroll services they need to perform their best. Contact us today if you’re interested in APS’ services or want additional information about our platform.
