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Payroll Risks to Avoid
When operating with a lean team, payroll issues can affect everything from compliance responsibilities to employee experience. Many issues can begin as simple oversights, such as incorrect paid time off entries, missed sick days or incomplete records, and become more complicated when businesses are also managing state-specific regulations, deadlines and multistate tax obligations.
Having clear processes and additional review can make payroll responsibilities easier to manage. For example, businesses may choose to have a second person review payroll before it is finalized. A team-based approach, with employees cross-checking one another’s work, can provide another opportunity to identify potential issues, particularly when managing different pay cycles or other payroll complexities.
External support can also be part of a business’s payroll process. Small businesses may not have dedicated staff focused on compliance, tax law or data security. A certified public accountant, compliance professional or payroll provider can serve as an additional resource as businesses navigate changing requirements and payroll responsibilities. Banking partners may also be a resource when planning for payroll-related cash flow needs.
Together, these systems, processes and professional resources can provide additional structure for managing payroll. Understanding where common payroll challenges may arise can also help businesses determine where additional attention or support may be useful.
Payroll issues in small companies commonly fall into a few key areas:
- Worker classification and tax handling
- Misclassifying employees and independent contractors
- Overwithholding or underwithholding taxes
- Relying on outdated tax processes or missing filing deadlines
- Misinterpreting local, state or multistate tax requirements
- Wage and hour compliance
- Incorrect overtime calculations for nonexempt employees
- Time-tracking issues, including missed punches or unrecorded sick time
- Inconsistent pay cycles that can create confusion
- Issues related to minimum wage and overtime requirements
- Recordkeeping and documentation
- Missing or incomplete time card entries
- Outdated employee information
- Issues related to state recordkeeping and reporting requirements
- Incomplete documentation that can complicate reviews or audits
- Timing and cash flow
- Delayed or missed paychecks
- Cash flow challenges related to payroll and tax obligations
- Inconsistent payroll schedules
- Systems and human error
- Incorrect data entry or skipped steps in payroll processing
- Disconnected systems for tracking hours and pay
- Unauthorized changes to wages or bonuses
- Payroll records that have not been updated to reflect current requirements
Each of these areas can be influenced by the same pressures many small businesses face, including limited staffing, disconnected systems and changing compliance requirements.
Supporting payroll operations
Businesses have several options for adding more structure to their payroll processes. Depending on their needs, that might include payroll software, outside payroll support, clearly defined workflows and consistent payroll schedules.
Regular reviews, documented procedures and current employee records can also provide additional checkpoints throughout the payroll process. Training employees on their payroll responsibilities and maintaining clear communication can help teams better understand procedures, responsibilities and expectations.
This keeps the useful information from the original while making the language much less likely to suggest that a particular process or provider guarantees accuracy, compliance or error-free payroll.
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