6 Common Payroll Mistakes to Avoid

6 Common Payroll Mistakes to Avoid

Payroll management is one aspect that you should focus on right from the time you create your business plan.

  • What would be the team structures in your team?
  • What would be their salary slabs? How and when would you be paying them?

A lot of such questions arise when it comes to payroll processing. Payroll processing is an on-going process that needs to be perfected over time.

Mistakes are prone to occur in business processes. But in some areas more than others, errors can turn out to be expensive.

Payroll processing blunders can lead to a vicious cycle of irreparable damages in your business process. You lose the credibility of your employees; your investors and clients can get a bad impression of your firm and your firm might be subject to litigations.

Common Payroll Mistakes

Getting to know the common payroll processing mistakes would help you figure out how to avoid payroll mistakes even before they happen.

1. Delayed Payments

Payment delays can come due to human errors. There could be unprecedented events that lead to delay in processing payments.

Sometimes the problem could be with bank hold-ups. Though it is a common payroll mistake, you should also be vigilant enough to not let this happen.

How to avoid

Automated processes and payroll processing platforms can help in this situation. Reminders, multiple levels of checks for payment initiation can also be useful.

Always make a note of the bank holidays and processing times to plan in advance. If delays occur despite the meticulous execution of your plan, a formal mail to the employees explaining the reason behind the delay and the stipulated time of processing would be the best thing to do.

2. Overtime calculation flaws

Overtime calculations are the primary components in several payroll disputes. The average work hours permitted and the number of hours taken into account for overtime could be the crux of the dispute.

According to the Periodic Labour Force Survey of 2017-18, conducted by the National Statistics Office, most of the employees in the country work more than 48 hours per week.

How to avoid

Knowing the current overtime laws and adding the overtime bonus in the pay, on time, would avoid problems. This is another place where having an outsourced team for payroll management can solve your concerns.

You need up-to-date information about any amendments that the Labour and Employment ministry brings. The payroll team pays undivided attention to all these aspects to help secure your organization from legal issues.

3. Vague employee classification

Besides the cadres in the organization, there are other aspects of classification. There are conventional full-time roles, contract-based employees, remote-support teams, employees working onsite and other types of profiles.

Handling such varied pay-scales might sometimes be challenging. Unclear classification of the employees can lead to a poorer understanding of the salary structure.

Contract employees might also have different payment schedules. Errors in payments are prone to occur in organizations with such diverse employment options.

How to avoid

Agility should be the core of your payroll system. With the changing infrastructure, there should be both scalability and adaptability.

A robust tool for payroll management can help automate the process and remove discrepancies created due to confusing payment schedules.

4. Missing ESI filing timelines

The socio-economic cover offered by the Government, namely ESI (Employees’State Insurance), is applicable for employees with a monthly salary below Rs. 21,000 slab.

All organizations that attract ESI for its employees should carry out the registration process. Further, the proper filing of employee contribution and employer contribution within the first 15 days of a calendar month.

Missing the deadlines for ESI filing and improper percentage calculation for employer and employee contribution are among common mistakes that happen.

The other problem could be when the employee’s wages are revised exceeding the eligible slab. The addition of overtime might alter the wage for the month and lead to a temporary waiver of the ESI. A confusion might raise again in such instances.

How to avoid

Approaching a payroll management service provider can be the fool-proof solution to the legalities involved in missed ESI filings and wrong calculations.

From registering your business with the ESIC and obtaining the 17digit unique code to assisting you with the entire process of filing the ESI on time, you would have help at hand. You can also get clarifications about exemptions and steps to take at the time of wage revisions.

5. Tax calculation mismatches

Inaccurate tax calculation and excess deduction of taxes from employees’ salaries or delayed payment of payroll taxes are some of the common issues concerning tax matters in payroll management.

The other problem could be when the payroll processing team delays sending the tax forms which in turn can delay the tax filing process for the employee.

Possible Measure

Working with an expert in the field helps your organization understand tax structures better. They can also work with you in the calculation and timely filing of taxes. This helps avoid disputes in tax returns and also avoid any legal issues coming out of payroll tax delays.

Disputes in tax returns and also avoid any legal issues coming out of payroll tax delays.

6. Reimbursement disputes

Various elements together constitute the variable pay in an organization. Some of them are available for the claim on furnishing the appropriate receipts or bills.

Some reimbursements are offered for official travel, accommodation and other factors that can vary from one organization to another. Delays in reimbursements or inaccurate amount credits can be issues that employees face.

Possible measure

Having a clear definition of the eligible reimbursements and providing employees clarity about the procedure to opt for reimbursement would be the first step.

Working with stringent timelines for reimbursement claims, instantaneous validation of proofs are the other essential measures.

Expert Assistance in Mitigating The Risks

Payroll mistakes can be an expensive affair in itself. You can manage it within your organization or choose to outsource it.

Small businesses are of the misconception that payroll management services are costly. However, this is an investment you make to save a lot of bigger problems for your organization.

Payroll processing mistakes can lead to dire consequences like resignations from talented employees which can have a long-term impact on the organization.

The best time to work on a resilient payroll processing infrastructure was yesterday! So the best time to act is now. Leave it to the experts to make sure that your firm has the best of payroll management strategies in place. This will keep errors small and big far away from your processes.

A combination of robust payroll processing tools and the right level of human intervention is the most dependable solution. Even if you plan to keep payroll processing full in-house, then you need both these ingredients for creating a success formula.

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