4 Big Payroll Mistakes – And How To Fix Them

Payroll is one of the most important processes in all businesses. However, business owners will tell you how much time it takes, especially if they have to correct different payroll mistakes all the time.

Things like new employees, tax deductions, public holidays, and incorrect timesheets, among others, can lead to common payroll mistakes. Fortunately, these mistakes can be fixed easily without any problems.

In this article, we will discuss some of the biggest payroll mistakes committed in businesses and how to easily fix them.

Wrong Overtime Wage Calculations

There are different classifications of workers. If your workers have been classified correctly as employees (and nonexempt employees), you need to ensure that you have paid overtime wages. However, you should avoid wrong overtime wage calculations.

Businesses based in the United States, for instance, are required to pay 1.5 times the regular pay for hours beyond the required forty hours every week. If your employee earns ten dollars, then you need to pay $15 for every hour worked overtime.

Fixing the Mistake

Ensure that you have reviewed both federal and state laws governing employee exemption. This is important in ensuring that you understand the criteria you should use when classifying your workers.

Some regions might have very strict laws regarding the employees who can be exempt and those who cannot.

You should make sure that you have processed your payroll correctly all the time. Apart from showing that you care about your employees, it is also a legal requirement for all businesses.

If you’re using payroll software to avoid such mistakes, exploring discounts such as a Gusto payroll promo code could help make these solutions more affordable, allowing you to manage your payroll efficiently and stay compliant without exceeding your budget.

After that, monitor every staff member carefully. You can use attendance software tools to track the number of hours they work every week. Ensure that the exact number of overtime hours is added to your payroll system.

Calculating Payroll Taxes Incorrectly

The rates of tax paid might change from time to time. They might also vary from one region to another. If you are not careful, these changes can be the recipe for payroll mistakes. If you calculate payroll taxes incorrectly, you need to find a way of covering the difference.

This can be done through owed taxes. You might also find yourself paying interest on tax mistakes, penalties, and late fees. This is a common money mistake for companies.

Some of the most common taxes you might need to keep tabs on include federal income tax, medicare tax, social security tax, state income tax, and local income tax, among others.

Fixing the Mistake

You will be notified when there are changes in tax rates. You, therefore, need to review these notifications to ensure that you do not use old tax rates. However, you can rely on software applications such as the Incfile’s payroll tax calculator.

These software applications are updated all the time depending on where you are operating from and the taxes you are supposed to pay. They do everything for you without any mistakes.

Wrong Payroll Frequencies

When hiring employees, you choose the frequency that you will use when paying their salaries. Depending on your business and what they do, you can pay them on a monthly, semimonthly, biweekly, or weekly basis.

There are no rules on how you need to pay your employees, but you need to confirm with regulators where your business is located. If you set the wrong payroll frequencies, you might find yourself with unnecessary fines or penalties. Always pay your workers without delays.

Fixing the Mistake

The first thing is to check whether there are any laws regarding payroll frequencies. After that, set a payroll frequency following the laws in your state. Depending on what your workers do, you can set different payroll frequencies.

In addition, set a reminder to ensure that you handle your payroll in time. This is essential in helping you to avoid delays when paying your workers.

Incorrect Classification of Workers

Workers can be classified as either exempt or nonexempt workers. Unfortunately, some business owners do not understand the difference between the two, a mistake that affects their payroll systems.

Exempt workers are not eligible for overtime wages. The law requires businesses to ensure that nonexempt employees are paid for time worked beyond normal working hours. They should be paid if they work for more than forty hours a week.

If, for instance, a nonexempt worker is classified as exempt, that worker will miss on their overtime pay. You might end up paying fines for this if you are not careful.

Fixing the Mistake

Ensure that you have reviewed both federal and state laws governing employee exemption. This is important in ensuring that you understand the criteria you should use when classifying your workers. 

Some regions might have very strict laws regarding the employees who can be exempt and those who cannot.

You should make sure that you have processed your payroll correctly all the time. Apart from showing that you care about your employees, it is also a legal requirement for all businesses.