Accurate payroll is not just about providing employees with their rightful earnings on time: it also ensures compliance with tax regulations, boosts employee morale, and safeguards your business from potential legal consequences. As you know, their pay is something all employees take very seriously, as they want to be paid fairly for the hours they have worked, and rightfully so. Also, your business can face penalties as well as legal ramifications if you fail to properly comply with all tax and employment laws, which can admittedly get confusing.
Why It’s Vital to Have Payroll Accuracy
In addition to the points outlined above, according to a Kronos Study, 24% of employees will look for a new job after just one payroll mistake. Another 50% claimed they will look for another job after only two payroll issues. Therefore, while legal matters and tax compliance are important, both in terms of having to pay fines and the hit it gives to your business’s reputation overall, it’s also imperative that you keep an accurate payroll in order to retain your valuable talent.
Now that we have considered why accurate payroll is important to the furtherance and success of your business overall, both in terms of being compliant as well as retaining top talent in a competitive market, it’s helpful to know what “to do” and what “not to do” in terms of ensuring payroll accuracy. Read on for more specific information:
Keep Comprehensive Records
Maintaining meticulous records is the cornerstone of accurate payroll processing. Keep track of employee details, work hours, overtime, sick leave, vacation, and any other relevant information. As mentioned briefly above, employees deserve to be paid accurately for the hours they worked. They also deserve to be paid for sick leave and any vacation days due to them. Therefore, it is immensely important that your business keeps comprehensive and accurate records. You, as a manager, nor the employee themselves will be able to keep up accurately with their hours worked and the time they took off or deserve to have off without a good system in place.
Stay Updated With Tax Regulations
Tax regulations can change frequently, and non-compliance can lead to costly penalties. Stay informed about the latest tax laws and updates to ensure accurate tax deductions, proper filing, and timely payments. The regulations change in terms of payroll compliance more than most imagine, even if you have checked to make sure you were compliant in the past. If you have gone more than a year since you updated your compliance information, then you likely need to give it another look.
Implement Internal Controls
Establish a robust system of internal controls to prevent fraudulent activities and errors in payroll processing. Segregate duties, conduct regular audits, and limit access to sensitive payroll information. Obviously, in today’s digital society, there are more and more security breaches due to leaks of sensitive information, also known as cyber breaches. Therefore, you have to work that much harder via internal controls to prevent issues from happening.
Double-Check Employee Information
Before processing payroll, verify all employee details, including names, addresses, Social Security numbers, and bank account information. Incorrect data can lead to misdirected payments or tax-related complications. It is much easier for this to happen than you might imagine, as a mixup on a social security number, for example, can happen with a simple typo. So, make sure that employees double-check that their information is entered correctly to avoid issues at the outset.
Relying on manual calculations can lead to mistakes. Embrace payroll software that automates calculations for wages, taxes, and deductions. We all want to assume that we can do the math correctly, but to err is human, no matter how smart or professional an employee is. Therefore, even if you have extremely smart, talented employees, automating calculations is a great way to improve your payroll accuracy.
Conduct Regular Reconciliations
Periodically reconcile payroll records with financial statements to ensure accuracy. This practice helps identify discrepancies and rectify errors promptly. While you want to check for accuracy on the front end of an employee-employer relationship, you want to look for issues after the fact as well.
Don’t Delay Payroll Processing
Timely payroll processing is vital to maintaining employee satisfaction and compliance. Avoid delays in payroll processing, as this can lead to financial strain for employees and damage their trust in the company. Just imagine an employee having a bill that needs to be paid, and suddenly there is a delay in getting their check. This can lead to mistrust from the employee towards a business and eventually cost a business valuable talent.
Avoid Inconsistent Classification
Ensure that employees are correctly classified as either exempt or non-exempt based on their job duties and salary. Misclassification can result in overtime payment errors and legal issues. This is a common problem and one of the most often noted reasons for payroll issues. Misclassification can lead to mix-ups in wages and benefits as well as other costly payroll errors.
Don’t Forget to Update Payroll Software
Outdated payroll software can be vulnerable to errors and security breaches. Regularly update your payroll software to benefit from bug fixes and stay compliant with the latest regulations. While the software is admittedly valuable and superior to human calculations, it's important to update that software to ensure it's accurate and as safe as possible.
Avoid Mixing Business and Personal Expenses
Keep business finances separate from personal expenses, as this can cause confusion and lead to inaccuracies in payroll calculations. Generally, you want to ensure that your business and personal finances and expenses are handled in two different ways and do not intersect.
Don’t Neglect Employee Feedback
Encourage employees to review their pay stubs regularly and provide feedback. Their input can help identify potential errors or discrepancies in the payroll systems. Also, if they ask for bi-weekly or weekly pay or prefer having certain benefits over others, do what you can to make them happy. No, you can’t make everyone happy all the time, but listening to feedback that comes up again and again, is a great way to increase employee satisfaction.
Make Sure It’s Accurate with TPC
Maintaining accurate payroll processing is a critical aspect of running a successful business. By following the essential dos and don’ts mentioned above, you can reduce the risk of payroll errors, ensure compliance with regulations, and keep your employees satisfied and motivated.