Common Payroll Mistakes & How To Avoid Them

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    28 Dec 2022
     Common Payroll Mistakes & How To Avoid Them When you become an employer, you are bound to make mistakes along the way, some bigger than others. While business expansion and steering through the ever-changing business landscape would demand most of your focus, business finance, bookkeeping and accounting are the first and obvious to be oversighted. You may get an opportunity to resolve most of the finance and accounting mistakes as long as your employees are being paid accurately and on time. Payroll is a complex and time-consuming process which is subject to ever changing regulations. Correct and on-time pay is one of the most basic expectations an employee has from the employer. Payroll mistakes can cost employees and businesses alike. Correcting payroll errors takes time and can be incredibly unsettling for employees. Also, failure to comply with federal, state, or local rules can lead to fines & penalties while losing talent to other employers who are considered more accountable. This blog covers some of the most common payroll mistakes and tips to avoid them.  Misclassification of Workers   Misclassification of workers results in payroll errors and may lead to underpayment or overpayment. It happens when a company considers a person as an independent contractor but treats him more like a regular employee, or vice versa. Misclassification can lead to :
    • Issues with right to Minimum wage, overtime pay
    • Issues with taxes, insurance, retirement contributions and other benefits
    • Lack of control over the work environment (e.g., no set hours, no guaranteed pay)
    • Right to collective bargaining
    • Protection from wage discrimination
    Tips to avoid
    • Consult Legal Experts
    • Refer to government resources and self check services
    • Review your contracts with the self employed contractors
    • Train your Managers to identify any misclassification and to be conscious in assigning work and responsibilities to the workers
    • Take corrective measures as soon as misclassification is identified. This could mean converting contractor to employee
    Missing Payroll Deadlines Missing payroll deadlines is one of the most common payroll mistakes and is easily done. Your employees rely on their paychecks as much as you rely on funds to run business, perhaps even more. For most people, it’s crucial to have a stable source of income to make the ends meet. They may not have finances to wait an extra day or more for you to wrap your head around the week’s payroll. However, missing payroll deadlines not only impact your employees but can have serious legal consequences and penalties imposed by Canada Revenue Agency (CRA). Tips to avoid Manual payroll calculation can be tedious and error prone. Using a payroll software can help calculate the number of hours worked, taxes, and generate the final paycheck. With Payroll Software Program in place, an employer can:
    • Manage employees and their pay periods, including deductions and withholdings
    • Track time worked to calculate overtime payments
    • Manage financial benefits such as RRSPs, pensions, and overtime payments
    • Efficiently report income tax returns
    • Save money by reducing manual errors and payroll processing fees
    Miscalculating Payroll amounts It's very common to make errors when calculating payroll amounts. There are many reasons why an employer can get wrong about payroll, it could be a simple mistake, such as failing to include holidays or overtime pay. It could also be more deliberate and intentional, like underpaying an employee or overpaying them. Whatever the reason, it can lead to significant problems for both the employer and their employees. Tips to avoid To prevent payroll miscalculation, employers should:
    • Know employees' hourly rate, overtime rate and shift differential
    • Calculate base salary and other compensation before calculating overtime and other allowances
    • Ensure to pay employees on time and either use payroll software or partner with an experienced payroll service provider like CJCPA to provide accurate calculations avoiding error and mistrust
    • Give each employee a copy of their pay stubs for them to check their individual hours worked daily, weekly or monthly
    Not maintaining proper Payroll Records  Payroll records are an essential part of the payroll process. Without proper payroll records, it becomes challenging for a company to establish whether all its workers are paid correctly and on time. Also, the company will have difficulty complying with tax laws and regulations. In Canada, payroll records are vital for both federal and provincial governments to ensure that taxes are paid on time, and employers need to keep track of how much money they owe to their employees. As such, it is important for businesses to make sure that their payroll records are up-to-date. Tips to avoid To ensure that you are complying with relevant payroll regulations, make sure that the payroll system is set up correctly and that it has been updated regularly. Here are a few things to check whether payroll information is accurate or not:
    • Ensure employees are aware of their responsibilities regarding record keeping
    • Ensure they are listed in the payroll system
    • Keep a track of their hours worked and when they were paid
    • Review your payroll records every month 
    • Keep track of sick days or vacation days earned
    Failure to remit withheld taxes Failure to remit withheld taxes in a timely manner could result in penalties, interest, and charges. Therefore, it is important for employers to verify that all taxes are properly withheld from employees’ wages and remitted timely.  However, if an employer fails to do so, CRA may issue a notice of assessment which will require them to pay the tax due plus any penalties and interest incurred. Tips to avoid To avoid penalties, it is important that business has sufficient records and documentation to prove the amount of taxes withheld from employees’ wages. Most efficient step is to approach an experienced CPA firm like CJCPA which has vast experience in dealing with these issues.  Final Words Payroll is a big responsibility. Even one mistake can have serious repercussions for your company and employees, something that really cannot be understated. You need to be vigilant about making sure that payroll responsibilities are handled properly. Fortunately, payroll errors can be easily avoided as long as the company is not misclassifying its workers, properly recording and calculating payroll amounts, and meeting deadlines.   We, at CJCPA, have a team of professionals and accountants committed to provide proactive bookkeeping and payroll services to help avoid common payroll mistakes and ensure you're properly outfitted to handle bookkeeping and tax-related tasks. Don't let payroll mistakes stand in the way of your business's success. Contact us for payroll services.   
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