I recently saw a very concise explanation from Bamboo HR on common payroll mistakes. I want to share the information with you, because mistakes in payroll can damage employee relations and also can have legal repercussions.
There are two types of employee classifications — exempt and nonexempt. In addition, there are also independent contractors; in the trucking industry some drivers fall into this category. Exempt and nonexempt employees are protected under the Fair Labor Standards Act (FLSA), which covers things like overtime pay and minimum wage. These protections are not afforded to independent contractors.
Make sure you fully understand the definitions between these classifications, so you don’t “deny an employee important benefits and wages,” Bamboo HR says. If you do misclassify someone, it can be costly.
In some cases, calculating pay can get complicated if it includes overtime, commissions, deductions and personal time off. Bamboo HR explained that generally for any hours worked beyond 40 in a workweek, employees get 1.5 times their regular wage. When it comes to overtime pay, make sure you check state law as well, because it may differ from federal law,
Make sure you have an efficient way to track employee hours, commissions, bonuses, etc. in order to avoid overpayments or underpayments.
There are laws governing deadlines for paying employees. Employees expect to be paid on a regular schedule and missing a deadline or pay period can have ramifications throughout the organization. In addition, you have obligations to meet payroll tax deadlines. Missing one of those deadlines can become costly with late fees, penalties and interest payments.
While sending out tax forms at the end of the year can seem like a no-brainer, don’t let deadlines slip your mind. Your employees and independent contractors need the paperwork from you — W-2s and 1099 respectively — in order to file their federal, state and local taxes.
FLSA requirements call for retaining payroll records for a period of three years. This includes information on hours worked, payment rates, payroll dates, etc., according to Bamboo HR.
In order to avoid these errors and the headaches they cause, make sure you have a process that accounts for all aspects of payroll. If you are not already using payroll software, now might be a good time to look into it to see how it can help you streamline the payroll process and avoid costly errors. Bamboo HR suggests investing in a human resources information system that will update employee information including ages, hours, withholdings, etc.
Also, make sure the people in your payroll department have the training and information they need to properly execute the payroll process. They need to be up to date on any regulatory or legal changes on the federal, state and local level that impact payroll.
Another suggestion from Bamboo HR is to run a deduction summary, payroll register, and cash requirement reports prior to processing payroll. This will help you identify problems and fix them before releasing payroll.
A checklist is a good way to make sure you don’t overlook any of the aspects of payroll and that you are compliant with all regulations.
Jane Clark focuses on managing the member services operation at NationaLease as vice president of member services. She works to strength member relationships, reduce member costs, and improve collaboration within the NationaLease supporting groups.