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8 Disastrous Payroll Mistakes You Should Avoid At All Costs

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Payroll is always a challenge – don’t let these common mistakes make the job even more difficult…

All businesses work to ensure their payroll is as efficient, and accurate as possible – and compliant with a long list of strict regulations. With so much administrative detail to consider, and the added pressure of strict deadlines, mistakes are inevitable and it’s rare that a pay cycle takes place without one issue or another. The real problems start, however, when those mistakes are ignored, or left unaddressed… and snowball into missed deadlines, unhappy employees, and costly penalties.

Given the importance of payroll, it’s vital your employees know how to identify and respond to the kind of mistakes that can trip up the pay process. With that in mind, check out this list of the most important payroll mistakes to avoid…

Misunderstanding Your Needs

If you don’t think carefully about what your payroll needs to do, you’ll end up with a system which is too costly, too slow, or doesn’t deliver the compliance performance you’re looking for. Practically, this means thinking about issues like how many employees you’ll need for your payroll, what resources you’ll direct towards it, or how frequent your pay-cycle will be.

Mis-classifying Workers

One of the most common, and classic, payroll errors is the misclassification of employees – unfortunately, it’s also one which tax authorities take extremely seriously. Misclassification essentially involves incorrect tax treatment: inaccurately classifying workers as independent contractors, for example, instead of full-time employees. While the mistake can stem from a lack of focus during induction, in worst cases dishonest employers use it to gain favorable tax treatment, which is why it’s treated so harshly.

Delays to Final Pay

Don’t get complacent about the regulations surrounding the delivery of final payslips. Every territory has its own rules on how and when final payslips should be delivered – so employers must make sure their payroll team knows what to do when an employee quits or is terminated. Bear in mind, errors in final pay can open businesses up to heavy compliance penalties.

Reimbursing Expenses

Many employers don’t deal with employee expenses correctly (travel, entertainment, food, etc) – and so incur tax expenses which might otherwise have been avoided. Think about how you implement your reimbursement plan: it may be cheaper from a tax perspective to adopt an “accountable plan” (or similar strategy) to deal with expenses and avoid certain payroll taxes.

Poor Record-Keeping

Good payroll is built on record-keeping: if your payroll records system isn’t up to scratch, you’re inviting problems – from short-term missed deadlines and compliance issues, to long term audits and financial penalties. Don’t neglect your data-handling and record-keeping system: train employees to use it, and update it as your needs change.

Failure to Scale

As your business grows, don’t assume your payroll can stay the same – make sure your system is built to scale up with your needs. Similarly, don’t ignore the benefits of outsourcing: a payroll service provider can quickly add capacity and procedural efficiency to your deployment as your administrative burden grows – or at least until your own payroll infrastructure can be brought up to speed.

Not Updating Software

All payroll systems use some form of software to facilitate the pay process every month – but it’s easy to forget to update these platforms to current compliance standards. Software updates are vital not just for compliance reasons, but to maintain cyber-security and keep your employees’ data safe. Out of date software poses an increasing liability the longer the problem is allowed to persist – remember to implement an update schedule that ensures your system is protected at all times.

Ignoring the Basics

Don’t neglect the fundamentals of payroll – that is to say, basics like the tax year, tax codes, social security rates, where and when to remit tax payments, and so on. It might seem obvious, but this information is the foundation on which the rest of your payroll infrastructure rests. Tackling this challenge is a matter of doing your groundwork, and involves everything from arranging adequate employee training and subscribing to industry publications – to simply sending out email reminders, and putting up information posters around the office.

Author’s bio: Kimberly Morrison is activpayroll’s UK Service Delivery Manager. She manages the UK payroll department and ensures the payrolls are delivered on time and as accurately as possible, using the information provided by the client.

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