Payroll can be one of the most complicated pieces of the human resources puzzle to lock into place, whether you’re running a small start-up or a Fortune 500 business. Employers Council members have a variety of payroll strategies to ensure their employees—and their taxes—are paid correctly, says EC’s Director of Outsourced Consulting Services, Kristen Borrego (CPP, SHRM-CP, SPHR).
“Members who come to us for payroll help are typically handling payroll internally using a third-party software like Paylocity or ADP,” says Kristen. Many times, an employee is assigned payroll in addition to their regular duties because it’s assumed to be a simple task.
“People think you just collect time cards and pay people,” says Kristen. “It’s really easy…until it’s not.” From taxes to garnishments to coding, there are many intricacies involved in paying employees. In fact, Kristen says, businesses are known to call Employers Council in a panic when the one person who knows how to process their payroll goes on vacation, gets sick, quits or retires. Too often this must-do job gets short shrift.
Here are some of the most common mistakes that occur when organizations don’t prioritize excellent payroll administration.
1. Incomplete or incorrect employee payroll data
It’s just as essential as it should be simple: Payroll data—especially social security numbers—needs to be accurate. Sometimes someone will enter placeholder numbers or birthdates while they wait for the correct employee information and forget to replace it. Other organizations will have employees enter the data, but don’t have systems in place to check that self-entered data for accuracy. Incorrect employee information can cause taxes to be flagged for social security mismatches, cause trouble for I-9 verifications and more. Backtracking to correct foundational employee payroll data can be both time consuming and costly, especially if past W2s and/or the employer’s quarterly federal tax returns need to be corrected.
2. Not coding overtime correctly
The consequences of inaccurately tracking and paying overtime can be significant: employees could file a Department of Labor complaint that triggers an investigation, the business could be at risk for legal ramifications, expensive fines and penalties can be due, and taxes will need to be corrected and re-filed. A simple coding typo can start off a chain of errors with an outsized impact.
3. Not processing payroll garnishments appropriately (or at all)
According to ADP, one in 14 American employees have some type of wage garnishment, such as child support, student loans or debt collection. “Employers don’t always understand that once they have been served the garnishment, they become part of that legal action,” says Kristen. “If they don’t remit payment, they are potentially on the hook.” If businesses forget to process the garnishment, creditors can come back to employers to collect that debt. Additionally, payroll administrators need to stay up-to-date on updates to individual state’s garnishment regulations if they are operating in multiple locations.
4. Not taxing employee earnings correctly
Kristen reports that the most common error they see has to do with taxation: not taxing benefits appropriately, taxing things that shouldn’t be taxed, not taxing “cash equivalent” earnings (such as gift cards, regular meals or equipment stipends) or not taxing earnings at the appropriate rate. Employers most often find out they’ve made a mistake from employees themselves, who discover the discrepancy when they are preparing their own taxes.
“Fixing taxation errors is laborious, depending on how far back the errors go,” says Kristen. “It can also be expensive, because in some cases, the taxing agencies have fines, most payroll providers have fees to re-open quarters they’ve already filed taxes on, and employees may ask employers to pay the bill for re-filing their taxes.”
5. Filing employment taxes late or incorrectly
Taxing employee earnings inaccurately necessitates fixing the employers’ taxes as well—another expensive fix, in both time and money. Another common employment tax blunder is assuming your third-party payroll provider is filing and paying your taxes…when they aren’t. Kristen told of an organization who ignored the tax notices they were receiving because they thought their vendor was also getting them and taking care of it. “If you don’t notify them of potential errors, they don’t know how to help you,” says Kristen. “And as we know, with all the taxing agencies, penalties and interest accrue.”
6. Not accounting for remote workers’ multistate locations
“When you hire someone to work remotely in a different state, you are now a business presence in that state, even if that business presence sure looks like their home,” explains Kristen. Businesses need to have tax accounts set up in every state where they have employees working and file taxes accordingly.
7. Not having solid payroll policies and procedures in place
“If someone is ill, and payroll is on Monday, what are you going to do?” asks Kristen. “It’s shocking how many businesses don’t have a payroll administration backup.”
Being late on payroll can be a Department of Labor violation, not to mention the “trickle-down effect” it can have on benefit premiums, 401K contributions and more.
“Having up-to-date payroll procedure and payroll documentation is important,” says Kristen, adding that some organizations think their payroll vendor will be able to step in and complete the process without the internal point person on the job—most won’t.
Employers Council offers holistic payroll solutions to help business avoid payroll mistakes
Organizations who want to avoid payroll mistakes—and the expenses that come with them—often turn to external payroll providers. Kristen says that the services Employers Council provide differ from other options in significant ways. Instead of a payroll vendor employee trained in one software or a linearly focused CPA, Employers Council’s payroll experts take a holistic approach.
“They are not looking at the bigger picture—the impact of employment law, integration with HR, and all the other facets of business,” Kristen says. “What also makes us unique is that we can process payroll on any software.”
Instead of just processing time cards and returning reports, Employers Council can tailor its payroll services to your organization’s unique payroll needs, including interfacing with managers, providing training and going to board meetings. Employers Council is also available for discrete payroll projects, like helping organizations switch payroll software, payroll audits and develop payroll policies and procedures, and act as an organization’s payroll administration backup.
Ready to talk about how Employers Council can help with your payroll needs? CONTACT US.
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