7 Payroll Mistakes to Avoid at All Costs

Payroll is one of the most important things a finance department can do. Not only does it ensure that all employees get paid on time and accurately, it's also important when it comes to submitting your tax returns.

Given its intricacies and reliance on personal data, it's no surprise that just one or two miniscule errors can have dire consequences. Here are seven payroll mistakes you need to avoid:

1. Improper setup

You should always start as you mean to go on with your payroll, so setting it up correctly is the most important step you can take. You need to ensure you are compliant with any federal, state or other laws that require you to maintain a certain standard and that all personal data about your employees is processed properly.

Not doing this can lead to fines and even penalties against your business. You should also check the amount you are paying employees and what tax this qualifies the company for.

2. Poor maintenance

As an employer, it's important that you keep accurate records of everything associated with your payroll. This means everything relating to expenses, records of employees' wages, timesheets and any other forms that are relevant to your payroll. This may seem tedious but saves you a lot of time when it comes to submitting your records or trying to find evidence when being audited.

Depending on where your company is based will determine how long you have to keep records for, but most countries will require you to hold documents for at least two years.

3. Neglecting backups

It's important that your payroll can work in less-than-ideal circumstances. Of course this means having the data backed up in a secure way, but you'll also need to have more than one person who can access and understand the information. With companies often having everything digitized, it can be easy to assume that all you need is cloud storage but what happens if you lose internet access or your computer system is hacked? You need to have a way to access information in any scenario.

4. Misclassification of employee

Failing to properly classify employees correctly can be a massive problem when it comes to keeping your payroll as accurate as possible. You need to ensure that all contractors, freelancers, full and part-time workers are classified to the proper standards. How a company categorizes its employees has a massive impact on their rights when it comes to parental leave, sick and holiday pay and tax, so it's crucial that you get it right.

5. Missing deadlines

It's not unusual for businesses to miss deadlines but it's certainly not advisable and getting into the habit of doing so can be costly. Understanding when your deadlines are for submitting information is an essential part of having a functioning payroll system. Get these details and set yourself soft and hard deadlines to ensure you don't miss them.

6. Payment miscalculations

It's important that employees are given the right level of employer benefits. Whether it's parental leave, holiday or sick pay, or a bonus, you need to make sure the amount - and any relevant deductions - are worked out ahead of time so that employees aren't left without.

7. Covering up errors

Few companies are able to completely avoid making errors somewhere in their system. However, the worst thing you can do is try to cover it up. For bigger firms, this is one of the main reasons why they outsource payroll to a third-party specialist so they're only responsible for giving them the necessary information instead of also having to interpret it properly. If you do make a mistake, come clean and face up to whatever penalties you may be susceptible to and learn your lesson.