A Few Internal Changes Can Eliminate Payroll Mistakes

22 Oct , 2016  

At the end of every pay period, workers have the right to expect to be paid the correct amount and on time. Likewise, state and federal taxing authorities demand that payroll taxes be submitted accurately and on their designated due dates. For the most part, things go off just fine with every passing pay cycle. Still, just one mistake can create a serious disruption. Whether a company handles itsown payroll or contracts with a payroll provider, eliminating errors should be a priority.

Most payroll mistakes are innocent enough, but some are the result of purposeful fraud. Implementing a few internal changes can eradicateerrors in both categories. Below are just a few things that come to mind.

Separate Payroll Duties

It is generally understood that the potential for errors increases for every person involved in a task. In the case of payroll, things are just the opposite. By separating payroll duties and instituting a check-and-balance system, a lot of the innocent payroll mistakes that result from carelessness or ignorance are doneaway with.

For example, a company that uses an online payroll service must still calculate hours and report those hours to the service provider. The two tasks should be split between two employees. One calculates the hours and turns the data over to the other; the second employee enters the information into the online database. A third worker can cross-check the work of the other two to make sure it is accurate.

Automate Where Possible

Automation is a very helpful tool for eliminating payroll mistakes. An electronic time clock is a good example. A high-end time clock can be integrated with a company’s computer systems so that hours are automatically recorded, calculated, and presented via comprehensive reports. As long as employees clock in and out correctly, all of the calculations necessary to make payroll are handled automatically.

Carry out Routine Audits

Auditing payroll records and processes on a regular basis is a good way to identify small mistakes before these cause significant problems. How often should audits be conducted? That depends on the size of the business and how often payroll is processed. As a side note, a reputable payroll service provider should already be conducting its own audits as a matter of course. Their data can be combined with the employer’s audits to develop a more accurate picture.

Audits should include a comparison between payroll and output. In other words, there are specific times of the year some companies would expect higher payroll. Think the holiday shopping season for retail operations. Payroll may spike in November and December, but it should be commensurate with output. By the same token, if payroll does not return to normal after the busy season is over, there may be something amiss. An audit would uncover whatever is wrong.

Outsource Payroll Processing

Finally, small businesses insisting on keeping payroll in-house are increasing the likelihood of making mistakes. One of the best ways to eliminate those mistakes is to outsource the task to a service provider that specializes in payroll. The payroll company is not trying to sell hamburgers; the hamburger joint should not be attempting to do payroll.

Payroll mistakes can cause big headaches when they occur. But making just a few internal changes in the way payrollis handled can eliminate most of the mistakes common to small businesses. Is there any good reason to not implement them? Perhaps, but any reasons a business owner might come up with can quickly evaporate the first time a serious mistake causes a big problem.



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