The Real Costs of Payroll Errors

Payroll is often the largest expense for a company. The following are a few ways that payroll errors can cost your company.

Payroll Software Systems

Payroll is often the largest expense for a company. Payroll can get even pricier when errors are made. The following are a few ways that payroll errors can cost your company.

Labor Hours Spent Correcting Errors

Every single error made must be corrected when it comes to payroll. Records must be accurate, the IRS must know exactly what money went where, and employees have to be paid what they are due. Unfortunately, this may mean an employee whose labor hours were meant to be spent elsewhere must take the time to correct errors.

In some cases, correcting errors may take even more time than payroll did initially. Errors can also be tricky to identify and fix. This may impact your labor budget and affect the bottom line.

Penalties Incurred from Compliance Errors

Complying with all existing laws governing your business is difficult, but the cost of non-compliance can be significant. Since many laws focus on aspects of payroll, it’s important to take steps to comply with those laws. If payroll errors cause you to pay taxes late, pay an incorrect amount, or submit incorrect employee details, you may have to pay penalties and face other repercussions.

Retroactive Taxes for Misclassified Employees

The people working for you may be classified as employees or independent contractors. When workers are classified as employees, employers may be responsible for paying overtime, paying a portion of taxes, paying benefits, carrying workers’ compensation insurance, and potentially paying unemployment. When workers are classified as independent contractors, companies are not responsible for these items.

If a company classifies a worker as an independent contractor and it is determined that the worker should have been considered an employee, it can be costly. A company may have to come up with retroactive overtime pay for the employee and may have to pay back taxes. Additionally, the company is generally watched more closely by the Department of Labor and OSHA.

Employee Trust Lost Due to Late or Short Payments

Employees count on their paychecks and trust their employers to make sure they are paid on time and as agreed. When those paychecks come later than anticipated or are not in the correct amount, it can affect their lives in many ways and can cause them to become dissatisfied with their position at your company. This can affect productivity and attendance, even if it only happens once.

Hiring Costs for Payroll Error Related Turnover

Some employees may decide to leave when payroll errors occur, especially if there are several incidents. Companies must replace employees that leave, incurring costs from having to recruit, interview, and train. Since turnover may increase due to payroll errors, this can lead to higher than projected costs in this area, affecting the budget.

Preventing Payroll Errors

Payroll software systems or a third party payroll company can help you to prevent payroll errors. Manually calculating payroll leaves you open to errors and makes it necessary for you to do regular research to stay current with laws. Both payroll software and third party payroll companies put you in the hands of experts and make managing payroll easy. You can save time and get matched with the right payroll software provider by clicking here.


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