Five most common payroll mistakes

The Five Most Costly Payroll Mistakes & How to AvoidThem

Payroll: Add up the hours worked by an individual for a specified period of time, multiply thehours by anhourly rate, pay that person the result, less a few deductions. So what's the big deal?

Regardless of how they do it, employers must pay their employees ontime and correctly. And each payperiod, employers are required to calculate, deduct, and payfederal andstate taxes, unemployment insurance, workers’ compensation, retirement plans, 401(K)remittances,benefits, sick time, vacation accruals, and garnishments (for child care or student loans), andotherforms of compensation, such ascommissions.Sound confusing? There's more.

In several industries, employers are responsible for tracking different wagerates on a variety of jobs, each with its own craft and fringe benefit requirements, differentunions, anddifferent workers’ compensation codes all in one pay period or for one employee. Restaurantpayrolls are complicated by tips and gratuities, banquet tips and service charges. In addition,multistatebusinesses must comply with all the tax codes in every state in which they operate.Payroll is an essential part of any business, but administering it can be cumbersome andtimeconsuming.What’s more, the payroll burden continues to grow. As government regulations create newrequirements,there are new pitfalls, and new risks of fines and penalties.

Payroll preparation is not an easy job and mistakes can be costly. According to IRS statistics,approximately33% of employers make payroll errors costing them billions of dollars annually in penalties.With more taxlaw changes expected, there is even greater risk for payroll errors.Besides penalties for late payment/underpayment of tax liabilities, payroll errors can sharplyeduce

employee morale and, in worst case situations, even lead to costly and embarrassing litigation.

Last November, the San Francisco Chronicle reported that two nurses and a medical clerk suedAlameda Countyover payroll problems, alleging that the county owed them back wages and frequently issuedinaccurate andlate paychecks to hospital workers. At least 280 county hospital employees reported payrollerrors. MichaelSmart, the medical center's chief executive officer was left without a good explanation and couldonly say, "Idon't know the cause. We have a very complicated payroll system."The lawsuit sought back wages plus damages, as well as a complete accounting of all back paydue and aninjunction preventing the medical center from withholding pay. This is a situation that noemployer wants todeal with.

It's generally accepted that payroll is a nonproductive, repetitive, administrative activity, the timeand cost ofwhich should be minimized. Payroll tasks can stretch your resources and keep you from focusingon themore important aspects of your business. When payrolls are prepared manually, they arenot only timeconsuming,mistakes are inevitable and payroll errors can cost big money.

With the trend toward automation, more and more companies are bringing advanced technologyinto theworkplace usingcomputers to handle inventory, accounting, word processing, and a multitude of otherback office functions.

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