Compiling payroll can be a headache, regardless of how big your business is. Constant changes in state and federal tax and employment law make paying employees and filing taxes complicated and time-consuming.
Tedious, stressful work is also ripe for errors. Suddenly, you’re wasting large amounts of time just making sure you stay compliant—and that’s not to mention the money these mistakes might be costing you.
Here are some of the most common payroll problems that businesses face as well as, we think, some good solutions.
Common Payroll Issues:
The Fair Labor Standards Act requires companies to pay employees premium wages of at least one and one-half their regular rate for any hours worked over 40 in a single workweek.
This introduces a whole new challenge for payroll: not only do you have to monitor exactly how much overtime the employee worked, but you also need to determine the correct rate of payment and factor that in with their normal wages.
Make sure your employees understand your company’s overtime policies and enforce them as effectively as you can. Keep in mind, however, that your policies do not take precedence over federal law. If overtime is worked, you will be required to pay accordingly.
Always be aware of all of your employees’ hours. When overtime happens, check with your payroll processor to ensure that everything is being recorded accurately. Luckily, ExakTime’s web-based time clock software makes it easy to monitor employees’ hours and stay ahead of unexpected overtime.
Companies often don’t realize that not everyone who works for them is actually considered an employee. If you hire independent contractors, temporary employees, or freelancers, they are not treated the same as employees when it comes to payroll.
In addition to determining their eligibility for benefits, the distinction dictates whether federal income and employment taxes are withheld. It also determines if you need to use a W-2 (for employees) or a 1099 (for non-employees) when reporting to the IRS.
Misclassifying an employee can result in costly fines and other administrative headaches.
Any time you’re hiring someone, make sure you understand exactly how they’ll work within your organization according to the IRS’s standards.
The IRS has resources available to help determine if a worker is an employee or an independent contractor. Also, if you know you’ve made a mistake, you can see if you qualify for the Voluntary Classification Settlement Program—but keep in mind that there will still be penalties.
Ineffective Time Records
Sometimes, payroll complications start with the actual recording of time—especially if you’re using paper time cards.
Errors or improper interpretations during data entry can result in underpaying or overpaying an employee. An employee’s handwriting might be indecipherable, or a supervisor might mishear or misremember and write down their time wrong.
These issues can lead to complicated legal issues if an employee feels they were underpaid or the IRS decides to perform an audit.
Make sure you’re recording your employees’ hours as accurately as possible. The honor system may be a morale booster, but it creates large amounts of uncertainty.
Exacerbating payroll calculation errors even further, if you have employees who work in multiple states (or multiple countries), you are responsible for making sure you’re compliant with all state and federal laws governing those employees.
This might be as simple as ensuring you’re meeting minimum wage requirements, or it might be as complicated as having to use a completely different system to file taxes for all the different locations.
These variations can create issues when processing your payroll. On a larger scale, they can lead to costly fines for improper tax filings.
If you’re hiring someone in a different state, make sure you or your payroll manager is familiar with tax and employment law in that area. States often have their own versions of laws that differ just enough to cause headaches when paying employees or paying taxes, but it is the business’s responsibility to figure them all out.
You’ll also want to make sure your payroll program can handle multi-state workers. Whether your process is manual or uses software, do a trial run to make sure you’re not going to have any issues when it comes to actually cutting checks.
Untimely Payroll Processing
When it comes to paying employees some businesses struggle to process their payroll in time. Payroll is often a complex task that is often pushed aside until absolutely necessary, but this can lead to complications when holidays and other events pop up, throwing off your schedule even more and preventing checks from getting cut when they’re supposed to. This leads to unhappy employees and, potentially, legal trouble.
With ExakTime, you can collect all of your time and attendance data easily, then sync that data with your payroll software. This limits the amount of math you’ll have to do manually, and makes it much easier to keep track of all the different factors that impact your payroll.
When the schedule is going to be interrupted, make sure your employees are aware of it. This gives them time to plan accordingly if they need to. Never assume an employee is going to be okay with a late check.
Want to learn how ExakTime can help eliminate your payroll problems? Contact us to request more information about our custom-tailored time tracking solutions.
Find out more about the rules for compliance with the Fair Labor Standards Act, and how an audit works, here.