Question

What are some common issues that occur in Payroll?

Answer 1

There are few common issues that occur in payroll:-

1. Classifying workers improperly

Some workers are independent contractors while others are employees. Mixing up the two types of workers can be a costly mistake.

You don’t have to pay a contractor minimum wage or overtime wages. Also, you don’t withhold employment taxes from their wages. If you misclassify an employee as a contractor, they might miss out on wages and governments miss out on tax revenues.

2. Improperly classifying exempt workers

There are two classifications of employees: exempt vs. nonexempt. You do not pay overtime wages to exempt employees. You must pay overtime wages to nonexempt employees when they work beyond 40 hours in a workweek.

If you misclassify an employee as exempt from overtime wages, they could miss out on wages. As a result, you’ll owe them back wages.

3. Miscalculating overtime wages

You must calculate overtime wages correctly. Overtime wages are different than regular wages.

If you don’t pay the correct overtime rate, you might owe back wages, penalties, and interest.

The FLSA says you must pay employees 1.5 times their regular rate of pay, also known as time and a half, for any time worked beyond 40 hours in a workweek. For example, if you regularly pay an employee $10 per hour, you will owe them $15 per hour for overtime worked.

Some states and cities have different overtime wage laws. Check your state laws to find out if you must follow more stringent rules.

4. Paying the wrong tax rates

Tax rates change all the time and may cause payroll issues. The rates you used when you started paying employees might not be the correct rates now.

When you pay the wrong rate, you will have to make up the owed taxes, plus penalties and interest.

Make sure you regularly check your employment tax rates. Many tax rates are updated every year.

5. Running payroll late

You must consistently run payroll using the designated pay frequency for your employees. For example, you might have a weekly, biweekly, semimonthly, or monthly pay period.

Your employees rely on receiving regular wages. Failing to pay them might destroy their trust in you. And, not running payroll on time can make you noncompliant with state pay frequency requirements.

Pick a regular pay frequency for your employees and stick to it. If you need to, set a reminder to run your payroll on time.

Run your payrolls with enough time for payments to process. For example, let’s say it takes four days to process direct deposit for payroll. You should run payroll four days in advance to ensure that employees get paid on time.