I have a guest blogger today who is addressing general issues for a global payroll. I thought you would find it very informative. It is submitted by Lingappa Amiyappa, General Manager–Payroll Operations, Paybooks Technologies India Pvt. Ltd. Their website is www.paybooks.in.
Every business which has employees must have a process in place to handle payroll, deductions, paying taxes to the state and central government, on time. The payroll process must work like a well-oiled engine – it is one of the most under-appreciated aspects of running a business but the most important. Not to mention that when mistakes happen, then the impact on a business can be bad.
The good thing is that most of the common errors which crop up during processing can be avoided by planning well, getting the right tools, and hiring the right people for the job. Training on an ongoing basis will also help payroll specialists keep up with the changes in the tax structure, learn how to catch mistakes early, avoid or fix them as needed.
That said, here is a look at some of the common payroll mistakes and how to avoid them.
- Incomplete records: This is one of the major reasons for mistakes in payroll. Though the requirements vary from country to country, employers are required to maintain employee records for multiple years. These should include hours worked, rate of payment, date of disbursement, etc. Having incomplete and less information like misspelt names, wrong ID numbers, etc. can result in penalties as it takes many man-hours to fix these problems.
- Incorrect employee classification: With more temporary employees, contractors, and consultants becoming part of the workforce, it is essential for a company to keep proper records. Proper classification makes it easier to send out paychecks as well as determine tax reporting.
- Missed deadlines: Since payroll activity is carried out regularly, it is essential that the payroll team marks the calendar for reporting deposits and paying payroll taxes to the central and state governments on time.
- Tax-related forms not sent: All employees, especially contractors must receive Form 16s every quarter so that they can file their tax returns. In the process of trying to do payroll and send out information, payroll teams have missed sending these forms out.
- Wrong calculations on overtime payments: Companies have guidelines in place on determining overtime pay. If it is not calculated properly, then it can cause problems and unhappy employees. This can happen if the employee classification is wrong. In some cases, the employees don’t get the overtime payment they are entitled to.
- Overdependence on software: There are excellent software products which are used to do payroll activities. As always, results depend on the person putting in the information. In the process of trying to do things quickly, some information gets left out and subsequent calculations are incorrect. The software can prompt the user for information, but this may not always be the case.
- Unsaved payroll records: Even though requirements vary from state to state, every company should save payroll records for a minimum of 5 to 6 years.
- Lack of confidentiality: Payroll teams should not share private and sensitive information with other employees as this can cause disagreements. Only senior managers and people in the payroll department can have access to this information.
- Inadequate personnel: Payroll teams should have enough people to carry out related tasks. When there is just one person to do the job and he/she falls sick, the work comes to a stop and causes delays. Not just that, it is always sensible to have back-up systems which can be used in case of computer failure.
Tips on avoiding errors while doing payroll
There are many things a payroll processor can do to avoid the errors listed above. Including the following tips into the payroll process will help you note and avoid errors before they creep in. A little care and attention go a long way in making the process fast, accurate and easy.
- Getting the right tools – Don’t want payroll mistakes disrupting your company and employees? Do some research and find the right payroll and HRIS packages. These must be integrated so that the HRIS manages vital employee information like ID numbers, bank account numbers, wages, hours worked, deductions etc. and these can be used by the payroll system every month to pay wages/salaries. Payroll systems, when synced with the HRIS, will automate tedious tasks. Payroll software does critical tasks such as file taxes, distribute paychecks, automate leaves, etc.
- Stay current on information – Many payroll errors occur because payroll processors don’t have enough or the most updated information. As laws and tax codes change frequently, it is important for them to stay updated. This is even more important if the organization has a global presence. Requiring payroll admins to do regular checks on employee status and other information can reduce error rate drastically.
- Analyzing Reports – Payroll software have a reports feature and generating one before sending out paychecks can cut down on mistakes. Getting the following reports will reduce error rate – deductions, payroll register and company’s cash requirements.
If payroll with errors has already been processed, fix it by reporting the error to the tax authorities. Your company may have to pay penalties, but it could get worse if the problem is not fixed. In case of minor errors, you could do one or all of the following:
- Cancel the current payroll and reissue once updates are done
- Run payroll manually in addition and adjust only for those employees whose payroll has errors
- Ensure that corrections have been made so that they don’t occur in the next payroll cycle
Once payroll errors have been noticed, figuring out where they are and fixing them will ensure a smooth process every pay period. Processing payroll is not the easiest job considering the number of things that must be correct. Incorrect or late payroll can have a big effect on employee morale, so it is important to do it right every time.