HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Payroll Mistakes

Do you find yourself dreading payroll every time you have to process it? Are you having a hard time avoiding mistakes but are not sure how to catch them before they happen? Payroll—often one of the most exciting parts of the job for your employees because they are getting paid—is one of the most comprehensive, technical, and specific parts of the job for HR. Read on to identify the common payroll mistakes and how to avoid them.

What Are Payroll Mistakes?

A payroll mistake can refer to any error that occurs when processing your employee payroll. Payroll mistakes are fixable, but depending on the severity of the mistake, can require more action than just updating your payroll system.

Why Is It Important to Avoid Payroll Mistakes?

Let’s review the two main reasons why it’s important to avoid payroll mistakes.
  • Keep employees motivated. When you show your employees that you respect their income and their ability to pay their bills on time, it goes a long way. Payroll mistakes could lead to employees not being able to do so and lead to issues with employee morale.
  • Late filing fees. With payroll comes employer obligations, like paying specific tax payments at the state and federal level. Errors in payroll can lead to mistakes on those filings or even lead to late filings, resulting in fees and penalties.

Most Common Payroll Mistakes

There are a vast number of potential errors in payroll, but let’s review the most common types.

Misclassifying Employees

Your employees are hired either as exempt employees (making them exempt from overtime), non-exempt (allowing them to receive overtime pay), or independent contractors. Should you classify an exempt employee as an independent contractor, taxes will not be taken out, creating a major payroll headache. Should you classify a non-exempt employee as an exempt employee, they may miss out on overtime pay that could drastically affect their take-home salary. It may just be a simple button to click in your payroll system to classify the employee one way or another, but the ripple effect it can have is vast and includes legal liabilities.

Inaccurately Calculating Hours

One of the most common payroll mistakes is data input error. Whether it’s verifying and calculating the amount of overtime pay a non-exempt employee will receive, or calculating the part-time employee’s hours to plug in to the system, the employee’s hours must be accurate. If the time entered into payroll is incorrect, the miscalculated pay results in an unhappy employee and payroll corrections on your part.

Missing a Deadline

Potentially the easiest error to avoid is missing a payroll deadline. The deadline can range to a tax payment, submission to a specific state entity, or even submitting payroll as a whole. Individual states have different frequency requirements for payroll taxes, so if your organization operates in multiple states, you must keep track of these and ensure you’re making timely payments (if your payroll company does not do this for you). If you process and submit your payroll to a third-party vendor, as most companies do, be sure to do it in accordance with the deadline given to you by your payroll provider. Most organizations need to submit their payroll to the payroll company no later than two business days prior to the required deposit date of employees' payroll, but some companies require four days. Check with your payroll provider to ensure you’re not missing crucial deadlines for your organization.

Not Keeping Records

Keep payroll records in case your organization goes through an audit, to help you compare previous years to current years for historical value, and because it's the law. The Fair Labor Standards Act (FLSA) requires three years’ worth of comprehensive pay records to be retained for your organization, including all hours worked, dates, tax rates, payment rates, payroll tax payments, and year-end calculations. Some states require retaining records even further back, so be sure to check your local requirements to ensure you’re keeping records appropriately.

Tips for Avoiding Payroll Mistakes

The most important thing to remember when it comes to payroll mistakes is understanding that they are going to happen. You’re human and cannot avoid making mistakes, but you can set yourself up for better success with the tips below.

Tip 1: Take Your Time

Many common payroll mistakes come down to the person processing payroll not having enough information or rushing through it. If you are running out of time to process payroll and find yourself in a rush, you’re bound to have more errors. Give yourself enough time to process uninterrupted and without added pressure.

Tip 2: Run Payroll Reports

It’s always beneficial to have a checks and balances system when processing payroll for your organization. If you have a payroll company, the reporting section will help you facilitate this. The most helpful reports to pull would be a deductions summary and payroll register. It’s best to review these prior to submitting payroll completely to correct any errors you find. These reports allow you to see if the employee deductions look correct. You can compare them to your company insurance documents for individual employees and make sure all the amounts coming out of your employees' paychecks match the amounts that should be coming out of their paychecks. It will also give you a comprehensive summary of the full payroll so you can double check that nothing is missing. When you’re processing payroll, it’s nice to take a step back and see the end result while you’re still able to fix any mistakes, and that’s just what these reports provide.

Tip 2: Follow a Process

If part of your job is processing payroll for your organization, it goes without saying that you won’t only process it once or twice, you’ll process it hundreds of times. Create a procedure to follow. Take the time to write down step-by-step instructions of how to follow the payroll process. You can add screenshots and even sections of “if you encounter this error, do this” to remind your future self what to do if you encounter a problem while you’re processing. While this may not be foolproof and you might still run into errors, you can add those to the process as you figure them out, making your document more and more comprehensive.

Tip 3: Lean On Your Payroll Company

You have a payroll company for a reason, and if you’re still using them, you must believe in them on some level, so lean on them to ensure you’re avoiding payroll mistakes. Most companies have a phone number to call or even a dedicated team member your organization can reach out to when you have questions. Utilize them. If your payroll looks off and you can't quite pinpoint why, reach out to your payroll provider and enlist their help in finding a solution. They may also have videos and presentations for you to follow as you run into errors; use them to your advantage. Asking for help when needed is a sign of courage and strength to grow your knowledge, especially when it comes to avoiding payroll mistakes.
Shalie Reich

Shalie Reich

Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
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Other Related Terms
1099-NEC Form
Base Pay
Biweekly Pay
Biweekly Payroll
Commission Plan
Compensable Time
Compensation Metrics
Daily Payroll
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Employee Time Clock
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Overpaying Employees
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Salary Basis Test
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Semi Monthly Payroll
State and Local Taxes
Step-Rate Compensation Structure
Tax Identification Number (TIN)
The Duties Test
Training Pay
Underpaying Employees
Wage Theft
Wage/Salary Compression
Weekly Payroll
Work Opportunity Tax Credit (WOTC)
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