Between managing operations, pleasing customers, and overseeing employees, one crucial area that demands unwavering attention is payroll. Ensuring accuracy in employee payroll isn't just about getting the numbers right—it's about protecting your company and creating a happy work environment.
Here are some reasons why paying attention to payroll accuracy is so important, along with some typical mistakes to avoid and ways to use Professional Employer Organizations (PEOs) to lessen the workload.
Why Payroll Accuracy Matters
- Employee Trust and Satisfaction
Accurate payroll ensures employees are paid correctly and on time, fostering trust and satisfaction. Errors in payroll can lead to frustration, decreased morale, and employee turnover. - Legal Compliance
Errors can also result in hefty fines and legal disputes. Compliance with employment laws is mandatory. Proper payroll management ensures adherence to wage and hour laws, ensuring you avoid legal troubles.
- Financial Health
Payroll errors can impact your business’s financial health by causing budget miscalculations and unexpected expenses.
Common Payroll Pitfalls
- Misclassifying Employees
If employees are incorrectly classified as exempt or non-exempt, you’ll have incorrect wage calculations. This can result in underpayment or overpayment, both of which have legal and financial repercussions. - Incorrect Tax Withholding
Failing to withhold the correct amount of taxes can lead to significant fines from the IRS. Employees may also face personal tax issues, which will affect their trust in the business. - Missed Deadlines
Missing payroll deadlines can cause financial strain for employees, leading to dissatisfaction and potential legal action. Late tax filings can incur penalties, further straining business finances. - Inaccurate Time Tracking
Errors in recording hours worked can lead to overpaying or underpaying employees. This affects the business’s bottom line and can lead to wage disputes.
Employment Law and Compliance
Employment laws governing wages are stringent and vary by state, but the Fair Labor Standards Act (FLSA) is a fundamental law that applies nationwide. The FLSA requires:
- Minimum Wage: Employers must pay at least the federal minimum wage, or the minimum wage for the state where the employee works, whichever is higher.
- Overtime: Non-exempt employees must receive overtime pay for hours worked over 40 in a workweek. Overtime pay must be no less than time and a half the employee’s regular rate of pay.
- Recordkeeping: Employers must maintain accurate records of hours worked and wages paid.
3 Types of Violations and Fines
Wage Violations can result if the business pays less than the minimum wage or fails to pay overtime. The business will owe back wages and could be subject to civil penalties or even criminal charges. Tax Violations can result for incorrect tax withholding and late tax payments. The IRS will impose fines that include interest on unpaid amounts and penalties for late filings. Recordkeeping Violations can result for failure to maintain accurate records, which can bring about fines and make the business vulnerable to lawsuits.
Professional Employer Organizations (PEOs) are experts at payroll and much more
PEOs are companies that partner with small and medium-sized businesses to manage HR responsibilities, including payroll. PEOs streamline the entire payroll process starting with employee data collection, which includes salary, tax withholding and benefits selections. They use secure online portals for data entry and updates to ensure accuracy and confidentiality.
PEOs process payroll, accurately calculate and deduct taxes, benefits, and other withholdings, set up and manage direct deposit or physical paycheck when necessary, provide electronic pay stubs accessible through an employee portal, apply wage laws, file quarterly and annual payroll tax reports, and handle unemployment insurance filings and payments.
PEOs also maintain detailed payroll records for each employee, generate customized reports for business owners, such as payroll summaries, tax filings, and benefits usage, and ensure compliance with record-keeping requirements.
Beyond payroll, PEOs offer guidance on employment issues, train staff on HR best practices and legal requirements, and ensure compliance with ever-changing laws which reduces the risk of penalties. PEOs also provide advanced technology for the employer and employee that integrates with time tracking, HR programs, and accounting systems, minimizes errors, and provides transparency and easy access to payroll records.
Business owners gain cost efficiency over managing payroll and other HR functions in-house because the PEO pools its resources across many clients. Outsourcing also frees up time so the business owner can focus on growing their business.
Accurate payroll management is vital for the success and legal compliance of any small business. Understanding the pitfalls and the importance of precise payroll can help you avoid costly mistakes. By partnering with a PEO, you can ensure that your payroll is handled expertly, allowing you to focus on growing your business while maintaining employee trust. Prioritizing payroll accuracy isn’t just a legal necessity—it’s a cornerstone of a healthy, thriving business.
Contact us to find out more about how a partnership with Engage PEO works.