15 Common Payroll Mistakes and How to Avoid Them

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With so many moving parts to consider - and the added pressure of strict deadlines - it’s easy to see how payroll mistakes happen…

In a small business, the effects of payroll mistakes are magnified - hitting employee performance, your reputation, and potentially resulting in hefty fines from the tax authority. The good news is many of the problems which typically affect small business payroll can be addressed, and avoided, by awareness, information and training.

To help you navigate the minefield, let’s take a look at some of the most common payroll mistakes...


1) Understanding your needs

Small businesses often end up with a payroll system which doesn’t fit their needs - that is, too costly, or too slow, to deliver the performance they’re looking for. Think carefully about what you need your payroll to do - how many employees will you hire? How frequent will your pay-cycle be?    

2) Knowing important dates

Failing to mark the important dates of the tax year on your calendar can easily lead to missed deadlines. It’s a simple step, but making sure everyone understands the most basic elements of the payroll schedule provides a foundation on which the rest of the process can be built. 

3) Classifying employees

Misclassifying employees is among the classic payroll mistakes - and one of the most serious. Even in a small business, ensure you understand the administrative differences between the employees on your payroll, such as temporary and contract workers - or risk punitive penalties. 

4) Maintaining records

Poor record-keeping is a sure step towards short and long-term payroll problems, including missed pay deadlines and failed audits. To avoid the common issues, you’ll need to install a robust data-handling system, and ensure employees are comfortable using it.

5) Allocating resources

Although it’s a specialised field, don’t neglect the conventional resources your payroll team needs to do its job - which could be anything from mundane office supplies, to specialised technology and software. Depending on your size, your setup may also require a physical space to address queries.

6) Finding employees

Many small business owners neglect the human skills their payroll requires. Although their roles focus on numerical ability, payroll administrators also need customer service, negotiation, IT, and management skills – amongst many more. Build your payroll on a spectrum of skills - rather than a narrow focus on number-crunching.

7) Offering career development

Don’t let your payroll team stagnate. In practice, this means offering training and career development - allowing employees to expand their professional skills, remain up to date with best practice, and, most importantly, continue to deliver the performance you expect.

8) Remaining compliant

Don’t forget: keeping up-to-date with compliance standards is a crucial duty of a payroll department. Help your administrators stay on top of compliance through training courses, communication with tax authorities, and subscriptions to industry literature. 

9) Choosing software

Payroll software doesn’t offer a one-size-fits-all solution - if you don’t think carefully about which platform will work best for your needs, you’ll likely introduce delays and compliance problems at some point down the line. Find the right software, and train your employees to get the most out of it.

10) Staying secure

Payroll data includes personal banking information, which means security must be a top priority. Don’t overlook or ignore practical and cyber security measures: ensure your online data is suitably protected and that employees understand what to do if there’s an attack.

11) Handling data

As much as security breaches are a risk to payroll data, so are a range of incidental threats, including fires, floods, and human error. Don’t forget to have a back-up and recovery strategy in place to deal with unexpected data-loss - and ensure your payroll process proceeds without disruption. 

12) Delivering customer service

With so much emphasis on calculation and compliance, it’s easy to forget that payroll also involves customer service duties. Ensure your payroll is set-up to handle disputes efficiently and appropriately - or risk significant delays and, worse, unhappy employees. 

13) Co-ordinating departments

Remember: payroll is an integral part of an organisation. You’ll need to ensure that communication networks between payroll, accounting, HR and any other relevant departments are clear and efficient - to help employees identify and resolve problems swiftly.

14) Considering outsourcing

If your payroll is struggling with the demands placed upon it, don’t slog ahead: consider outsourcing as a viable option. While larger organisations use payroll outsourcing for ‘pre-packaged’ compliance expertise during expansions, small businesses can use it to alleviate the administrative burden, leaving them free to concentrate on delivering core services.

15) Integrating flexibility

Remember to factor your payroll into your growth plan, by building in flexibility. As your business changes, so should your payroll: be prepared to scale up and down, integrating new tools, or hiring employees as necessary.

 

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