10 Payroll Mistakes Every Business Should Avoid

Payroll affects every aspect of business: anticipating and avoiding common payroll mistakes is preferable to dealing with their consequences…

Every good business relies on an effective payroll department. Beyond the crucial matter of delivering salaries accurately and on time, payroll is a foundation on which all other departments and processes are built—and sends an important message to colleagues and clients that your organization is trustworthy, competent and professional.

Achieving a high level of performance masks a huge amount skill and effort on the part of your payroll team—who work to strict deadlines in a complicated landscape of compliance and legal regulation. With so much small detail to consider, it’s easy to see how simple payroll mistakes can snowball into much bigger problems down the line.

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Understanding how and why these kinds of payroll errors happen is crucial to avoiding them: With that in mind, here are 10 classic mistakes your payroll team can, and should, avoid.

1. Tax basics: Failing to become familiar with the tax landscape in which your business is operating can quickly lead to missed deadlines and compliance penalties. It may seem like a basic step, but it’s important that every date and deadline in the tax year is marked on the payroll calendar—and that every member of the payroll team understands the schedule.
2. Incorrect employee classification: Full-time employees obviously bring significantly different tax obligations than independent contractors (for example), but a lack of focus when inducting employees into payroll can easily result in classification mistakes. It’s vital that payroll administrators understand the administrative implications of each employee classification—to both reduce pay-day friction, and maintain a good level of compliance.
3. Poor record-keeping: Payroll involves the coordination of vast amounts of data—from overtime hours and business expenses, to individual tax statuses and personal banking information. With that in mind, lazy or inefficient record-keeping can create simple errors, and hamstring the payroll process before it begins. Every payroll department should have a clear, robust easy-to-use record-keeping system in place to help its administrators efficiently input, and access, the information they need.
4. Lack of compliance awareness: The payroll regulatory landscape shifts frequently—by not keeping up to date with recent changes, businesses invite costly compliance penalties and, worse, reputational damage. Don’t forget to keep your business’ payroll team up to date with any relevant compliance changes through training courses, industry literature subscriptions—or by simply contacting the relevant authorities.
5. Exploiting skills: The composition of a payroll team must reflect the tasks it will be required to perform. With that in mind, it’s a mistake to fill your payroll department with mathematicians and number crunchers—or to ignore the spectrum of skills available to you within your team. Modern payroll departments need managers, strategists, IT experts, customer service specialists, and more—and you’ll need to think carefully about how to assign each individual employee.
6. Dealing with queries: A major part of any payroll service is addressing sensitive client queries, face to face. Without a suitable customer service system in place to handle those queries, payroll departments quickly become bogged down. The longer it takes to address and resolve issues, the higher the likelihood of employee dissatisfaction—and further administrative backlog.
7. Ignoring professional development: Some employers incorrectly assume building an effective payroll department is a ‘one-off’ task. On the contrary, payroll departments need to be maintained as much as any other department—or risk stagnation and talent drain. In practice, this means focusing on professional development, sending payroll employees for industry training, and ensuring they have the tools and skills to perform to the standards you expect.
8. Outdated software: While software platforms handle a variety of important payroll tasks, they can quickly become a liability, especially if they are out of date, or if administrators don’t understand how to use them correctly. Payroll software must be updated frequently to address glitches and security issues, while employees must be regularly trained to use new digital tools appropriately.
9. Poor communication: It’s easy to view the payroll process as taking place in isolation, but it’s essential your payroll department integrates well with other departments, especially HR, Accounting and IT. A lack of communication between payroll and the rest of an organization restricts the flow of data, delays important tasks, encourages compliance problems and, ultimately, leads to missed deadlines.
10. Back-ups and security: By necessity, the payroll process involves sensitive data—including personal banking information—and yet many businesses fail to take the appropriate measures to protect against security leaks or data-loss. Even minor security breaches can be extremely damaging to a business’ day-to-day operations and its wider reputation: every member of your payroll team should understand your security policy—and be aware of the back-up strategy in the event of data loss.