Payroll is the process by which a company pays its employees. It is also known as payroll processing or payroll management and can be expensive for companies. There are many different payroll software packages that can help with the cost of it. However, there are some affordable options out there to make sure you're not losing money on your employees.
Why Is Your Payroll Important?
Payroll is an essential part of a business. It's the main way in which you ensure that all your employees get paid for their work and that you are compliant with government regulations. In addition to providing your employees with their wages, it also helps the business save on taxes and keep track of how much money they have to pay out in benefits. Even if you're a small business with just one or two employees, you'll need to know exactly what each employee is making in order to properly manage your company finances and budget based on the needs of your business. Payroll affects every aspect of a business, from morale and financial stability to whether or not there are profits post the pay date.
Keep In Mind-
Here are some of the reasons why payroll is an important aspect in running not just large, but also small businesses.
Morale- The morale of employees is amongst the most important aspects of payroll. Employees in a small business would be more aware of their company's financial stability, making any discrepancy in timely payroll look questionable. That said, it may cause the employees to not work up to the mark as they won't feel secure in their job.
Compensation- Payroll is a system that allows an employee to feel his net worth within the company. Within performance evaluations, employees receive their total compensation - salary, bonuses, and benefits - which they realize each year through payroll. Employees who perform well in their annual performance evaluations typically receive an increased salary, a bonus, or both. Benefits also reflect how valuable each individual employee is to the company as part of its workforce and within the company's financial picture.
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Payroll Mistakes To Avoid
Payroll mistakes are a common occurrence for employees and employers. Whether it's due to time constraints, a lack of knowledge, or oversight, there are many mistakes that could happen during payroll. Before you make future payroll errors, here are some things to consider when entering the world of payroll.
Did You Know-: MHR Global's 'Payroll Problem Report' has found that more than "91% admitted making payroll errors every month in the 12 months up to April 2021. It also found that nearly 65% of those falling victim to payroll mistakes or late payments had to borrow money from friends or family. More than 43% of employees said they would leave an employer that repeatedly paid them late or incorrectly, with many employees considering moving to a new job as soon as the employment market improves."
- Accessed from www.thehrdirector.com
Misclassifying Employees-
Employees are given protection and benefits under the Fair Labor Standards Act (FLSA). These include overtime pay and minimum wage, amongst other such benefits. Not all fall under these benefits though, like independent contractors. There are also employees who are exempt from this, and those that aren't. The company needs to understand which employee falls under which category and ensure payroll is done accordingly. If left unchecked, an employee who is misclassified may miss out on important benefits or wages. They could also be paid too much in tax dollars and cost the government money! The resulting underpayment or overpayment can have a costly effect.
Not Calculating Pay Properly-
When it comes to calculating someone's pay, payroll admins - who come in the finance department, but who work closely with the human resources team - have a lot to keep track of overtime, commissions, deductions like PTO, and more. The regulations for payroll might differ from state to state. If your company doesn't have a reliable way to track employee hours or paid time off, then your chances of making a payroll overpayment or underpayment mistake increase a lot. Some common pay miscalculations include-
Going wrong with retroactive payments
Making wrong deductions for benefits or other payroll deductions
Not paying those who are new joinee with proper calculations
Miscalculating payment for the employees on leave
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Wrongly Tracking Overtime & Work Hours-
Not logging overtime hours can cause overtime payments that are incorrect. The correction for this can be not just bothersome, it can cause the corrections to span across different tax years. Working during break time, traveling between workplaces, attending work-related assignments beyond work hours - all of these and such other overtime hours need to be factored in when figuring out the payroll.
Misreporting Taxable Employee Compensation-
In addition to salary and overtime, commissions or bonuses, there are also other kinds of taxable compensation that need to be reported. This can include things like pensions, profit-sharing plans, and stock options. All of which needs to be reported to IRS, even something you might seem inconsequential for taxes like monetary awards or gifts.
Unorganized Record-Keeping-
Errors in the process lead to missed payments and other problems that can take weeks or even months to uncover. Without a structured, orderly approach, records are difficult to find and may be lost altogether. Disorganized databases also cause more work down the line as these kinds of errors can have consequences. If the system isn't documented (if the payroll admin is not in place - on leave or he or she has left the job), then the system gets hindered. The records, and the system, need to be such that others can decipher and work on it too if required.
Wrong Payroll Documents-
The W-2 is the other payroll document aside from a paycheck that employees receive. It includes their gross and taxable income, total wages paid to them by an employer, and shows that they have been withheld for benefits like 401k's in addition to health spending accounts. This document is used by the employee when filing taxes so even one small mistake could be costly.
Miscalculating Employee Time-
With the increase of employees in the workforce, it can be hard to keep up with all the different state and federal payroll laws. There are a lot of rules, regulations, and responsibilities that employers have to follow when it comes to employee time. Time tracking is a vital part of payroll. There are many tasks that require employee time to be tracked such as- preparing paychecks, getting copies of those paychecks, calculating withholdings, doing tax returns, and documenting the number of overtime hours amongst other things. With these many rules, mistakes are bound to happen by accident or on purpose. Here are some common mistakes to watch out for with payroll w.r.t. time for your company.
Not properly calculating the days to be paid for (unpaid leaves, etc), compensations to be given, overtime payment, reimbursements, etc.
Not keeping paychecks (or scheduled money transfers) ready on the decided date of the payroll.
Not keeping a proper log of the payments made - when, to whom, and how.
Not ensuring the taxes, fees, tax returns, etc in order.
The Importance Of Timely Payroll-
Timely payroll is essential for business. It sets the tone for your company's financial health and can even save your business from going under. Every day, businesses are becoming more dependent on technology and thus, there's a need to be able to pay employees through various methods. One way to have timely payroll is to transition to using software that takes care of all payroll services. Here are some of the main reasons how using an app or software (like Zipclock) for timely payroll helps-
It aids in reducing the risk of penalties
It simplifies payroll processes like reducing work duplication, making deductions that are necessary, disbursing salaries in a timely fashion, reporting insights efficiently, etc
It enables undertaking the payroll from anywhere, at any time, making the process more efficient.
The Consequences Of Late Or Incorrect Payroll-
Most companies often find themselves in a difficult situation with their payroll. This is because not paying employees on time or incorrectly can lead to major consequences, such as wage garnishment and lawsuits. Some of the ways employers avoid these consequences are through accurate paychecks, withholding taxes, and ensuring that they've paid workers the correct amount of hours they have worked. Workplace policies should be established to protect your company from liability in case of employee mistakes or negligence.
Best Practices For Payroll To Avoid Making Mistakes In It
A payroll is a very important and complicated task. Payroll errors can cause serious consequences for businesses. They can result in fines, penalties, and even bankruptcy if not taken care of in time. You should not just be aware of the common mistakes that are made when handling payroll information, but also how to avoid them.
Establish Payroll Policies-
You should establish a manual to record all of your payroll activities, including when exceptions are made. This can help you comply with legal requirements. You also need a policy for records management and retention, which will serve as the guideline for how long each piece of information is retained in order to comply with legal obligations.
Evaluating Processes & Payroll Providers-
If you need to improve your company payroll, be aware of inefficiencies and areas for improvement. If errors or failures are occurring, review existing processes with a fresh perspective and consider switching to another provider. As you identify potential candidates for the task of managing payroll, prioritize those that can meet your organizational needs.
Track Regulatory Updates & Laws-
In addition to understanding the basic requirements of FLSA and tax withholding laws, you also need to understand how to apply newer programs such as the Payroll Protection Plan (PPP) and other such updated, new laws and regulations. These are all tools that can help your company stay in compliance with changing regulations.
Keep A Checklist & Calender-
By following a payroll calendar throughout the year, you always know what's next in your timeline. You can plan out how much time to allocate towards the different tasks involved with payroll - like issuing W-2s, meeting payroll tax obligations, etc - ahead of time so that they don't become overwhelming or take too much effort on the day of the deadline.
Automate The System-
Automating payroll workflows and their related processes is a method to avoid manual entry, paper-intensive processes that can often open the door to errors. Furthermore, an integrated system keeps all activities aligned with time tracking, scheduling, and employee benefits elections - so you don't have any mixing up of files or information. Using an app or software that works through a payroll portal makes the whole process easy. All you would need to do is fill in the data of the employee - date of joining, salary, leaves allowed, category as per FLSI, etc - along with the payroll tax bracket he or she will fall in. If the payroll system is integrated with the attendance log, leave approvals, and such HR functions, it gets easier to know the payable hours using the payroll hours calculator along with the tax that needs to be deducted using the inbuilt payroll tax calculator. All of this, along with related features within the system, helps make the payroll process easy and the automation eliminates errors.
Why Use Zipclock To Help With Payroll Management?
Amongst the many aspects that make up the payroll, payment according to employee time and attendance is amongst the topmost in importance. Using an automated system for attendance and time makes the process much smoother. That said, which system is amongst the best in the industry for this? The answer is Zipclock. Amongst its many crucial Zipclock Features include-
Enforcing the business rules and labor laws
Reviewing, editing, and approving employee time punches
Eliminating time theft using the system's employee performance reporting tools
Giving alerts to help avoid labor law breaches
Figuring out employee shift management
Knowing if your employees are being compliant
Maintaining an audit trail for all employees
With its many benefits, Zipclock is the employee management system that one needs to have. Unsure of it yet. try out their free demo!
People also ask
What is payroll system?
Payroll is a process used to record the wages of employees, calculate and distribute salaries, and collect taxes. This is done by means of data entry into a payroll system with information such as employee name and hours worked to complete the process.
Is payroll the same as paycheck?
Payroll is the same as a paycheck, but they're not always the same. Payroll refers to the regular payments made by an organization or business to its employees. Paychecks are just one form of payroll, and they are issued on a periodic basis. You might be wondering what payroll really is. In this context, payroll means that you have been paid for work completed or will be paid in the near future. If this is not the case with your company, then your paycheck would be called a wage instead of a paycheck. Payroll- A payment from an organization or business to their employees. Paycheck- One form of payroll; issued on a periodic basis Wage- Pay that has not yet been issued
What is included in a payroll?
Payroll is just a fancy word for the money that an employer pays their employees. It includes salary, taxes, and other bonuses such as commissions or overtime pay. Here are a few things that are included in payroll- -Salary -Taxes -Overtime Pay -Bonuses Here's an example of what a payroll might look like as it comes from a human resources department.
When does payroll end?
Employment ends when the payroll is complete on the last day of the month. The last day for payroll to be sent out is the fifteenth of the month. Budgeting - Most employers provide their employees with a monthly budget that they can use to pay bills, buy food, and other necessities. - This helps employees manage their spending and save money.
