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Payroll Errors In 2024: Examples, Risks And How To Fix Them

Managing payroll has become increasingly challenging, due to rapid changes in technology, shifting regulations and the global expansion of many businesses. The more complex your payroll is, the higher your risk of payroll errors. These errors can range from tax miscalculations to data entry mistakes, and many more.

Payroll errors pose a significant risk to your business, including reputational damage, compliance issues, and high staff turnover, due to employee dissatisfaction. Below we’ve shared the biggest payroll errors to avoid in 2024, the risks of these mistakes, and expert advice on how to fix them safely. 

Author: Simon Bradbury, Global Payroll Consultant and CEO
Last updated on: 02/04/2024

Most Common Payroll Errors In 2024

  • Data entry errors
  • Overtime calculation errors
  • Incorrect holiday pay
  • Not keeping up with changing regulations
  • Employee information mis-management
  • Overlooking employee benefits
  • Incorrect tax withholding 
  • Currency conversion mistakes 

 

Data entry errors

Data entry mistakes in payroll are a common problem that can lead to serious consequences, including financial discrepancies, a loss of trust and compliance concerns. 

These errors can be as simple as typing the wrong number into your data or getting important payroll details wrong. Whatever the payroll error, mistakes in your data entries can lead to problems for your business and employees.

If these errors aren’t quickly spotted or corrected, they can lead to significant problems, including financial errors and legal issues. 

To avoid data entry errors, businesses should invest in continuous training for their payroll teams.There are also tools that check for data entry errors, including Paychex and Xero. 

One effective practice for preventing errors is to implement a 4-eyes check. The term “4-eyes” implies that the two individuals responsible for inputting the data are different from the two individuals tasked with verifying the data. This process ensures that there are always 2 people involved in the data verification.

Importantly, the 4-eyes check is not only a good practice but is also mandatory for both SOX (compliance in the US) and SOC2 (compliance in the UK & EU). By incorporating the 4-eyes check into your payroll process, you align with these crucial compliance standards, providing an additional layer of assurance and reducing the risk of errors that could lead to financial and legal consequences.

Overtime calculation errors

Miscalculating overtime is a significant payroll concern. There are both financial and legal implications for your business, as well as a huge impact for your employees. Overtime calculation errors happen when there are inaccuracies in tracking or recording your employees’ additional work hours, beyond their regular schedules. These inaccuracies can stem from manual data entry mistakes (like those shared above) and oversight in monitoring actual hours worked. 

Overtime calculation errors can lead to underpaying, or overpaying, your employees. These can quickly lead to financial discrepancies, both for your team members and your business’s overall financial stability. 

Consistent errors in calculating overtime can break your employee trust and workplace morale. If your employees feel they are not being accurately compensated for their extra efforts, it can lead to a decline in overall productivity and job satisfaction. 

Finally, overtime errors can lead to non-compliance with laws and regulations, placing your business at risk of fines, penalties, and in some cases, potential lawsuits.

Incorrect holiday pay 

There’s also a lot of confusion about how to calculate holiday pay, especially for part-time workers or those with irregular hours. As there’s no agreement on a standard method for figuring out holiday pay, it makes things more complicated and uncertain.

Part-time employees and those with variable hours often have unpredictable work schedules, making it hard to come up with a consistent way to calculate holiday pay. Different employment contracts, irregular work patterns, and seasonal changes in workload add to the confusion. 

It’s unclear whether holiday pay should be based on an average of weekly hours, a fixed percentage of yearly earnings, or some other formula, making the payroll process more complex.

This confusion not only makes it tough for businesses to fairly compensate their employees but also raises concerns about following the rules. Inconsistent approaches to calculating holiday pay could lead to mistakes, causing financial issues and potential legal problems.

To fix this, it’s important for policymakers, industry experts, and legal professionals to work together and set clear guidelines for calculating holiday pay, especially for part-time workers and those with irregular hours. 

Until there’s a clear standard, businesses should stay updated on holiday pay regulations, get legal advice, and think about using flexible payroll solutions that can adapt to the unique situations of part-time and variable-hour work.

Not keeping up with changing regulations 

As employment laws, tax codes and other regulations change, failure to adapt your payroll accordingly can lead to various issues. Falling behind on rule changes is a bigger issue for global payroll, as this involves dealing with many different laws and regulations around the world. 

Global payroll has to follow rules from different countries, and these rules can change often. If your business doesn’t keep up with these changes, it can lead to various issues. It will raise the risk of audits,disrupt how the business operates, and could harm its reputation.

As laws about the workplace and taxes change, not adapting payroll practices can impact both your business and your employees. To avoid errors, make sure your payroll team stays informed about rule changes across each country it operates in. 

You can use technology that can automatically update your payroll, like ADP Workforce Now or BambooHR. 

Employee information mis-management

Employee information mis-management in payroll is not only a potential financial risk, but can also result in legal and compliance issues. These involve mistakes or mishandling of various aspects related to your employees’ compensation, personal information, or benefits package. 

For instance:

  • Errors in employee names, addresses, or national ID numbers
  • Mistakes in recording salary, bonuses or overtime
  • Errors in tracking and managing leave balances, resulting in employees being overpaid or underpaid
  • Errors in managing employee benefits, such as health insurance, retirement contributions, or any other perks

These types of errors can occur at different stages of the payroll process and may result from human errors, outdated systems, or inadequate training. Some of the mismanagement results from the employees themselves, though, and unfortunately cannot be helped. This may include incorrectly putting their new bank details into a system. 

Overlooking employee benefits 

Mistakes in overlooking employee benefits can occur throughout the payroll process. For instance, data entry errors can lead to inaccuracies in benefit calculations. If your HR and payroll systems are not integrated, there can be discrepancies in benefit data, too. Missing or incomplete documentation can also lead to errors in benefit processing. 

Employees might not get the right amount of compensation, and the company might face fines for not following the correct rules. 

Incorrect tax withholding 

Tax withholding errors can have significant consequences for both employees and employers, leading to financial discrepancies, compliance issues, and potential legal problems. If the amount withheld for national taxes is too low, your employees may end up owing money to tax authorities when they file their annual tax returns.

Errors in calculating and withholding taxes may result in non-compliance with tax laws, leaving your business at risk of penalties and fines. This is especially true for global payroll, as you’re navigating multiple tax regulations, currencies and employment laws across different countries. 

There area few ways to reduce the risks of incorrect tax withholding, especially if your business has a global presence:

  • Implement a payroll system that is designed to handle the complexities of global payroll 
  • Invest in continuous training for your employees
  • Conduct regular audits to identify and fix errors promptly

Payroll error examples

Below we’ve shared a few payroll error examples to watch out for in 2024.

Benefit Overpayments:

Error: Overestimating or incorrectly calculating benefits, leading to overpayments.

Risk: Financial discrepancies, potential legal issues, and challenges in recovering overpaid amounts.

Missing or Inaccurate Benefits:

Error: Overlooking or inaccurately calculating employee benefits such as health insurance or retirement contributions.

Risk: Dissatisfaction among employees, legal compliance issues, and potential financial strain on employees.

Late Payments:

Error: Delays in processing payroll or issuing payments can occur due to administrative issues or system failures.

Risk: Employees may experience financial strain, and the organisation may face trust issues and potential legal consequences.

Consequences of payroll errors 

Payroll errors can pose various risks to both employees and employers, impacting financial stability, legal compliance, and the overall well-being of your organisation. Firstly, inaccuracies in pay can impact your employee morale, leading to dissatisfaction. Non-compliance with laws and regulations put your business at risk of fines, penalties and legal actions from regulatory authorities or affected employees. 

Payroll errors can also harm the reputation of your business, both internally and externally. They can also place you at risk of failing audits. 

How to avoid payroll errors

Avoiding payroll errors requires a combination of automated processes, a commitment to compliance, and on-going training for your team. 

Invest in employee training 

Don’t underestimate the importance of providing regular training to your payroll staff. This ensures your team stays informed about changes in tax laws and other regulations. Training sessions also help employees stay up-to-date with the latest changes to your payroll software.

Utilise external payroll experts 

Investing in external payroll experts can significantly reduce the risk of payroll errors. Our consultants can perform audits on you payroll processes and support your team to implement best-practices. 

Our team also works with a variety of payroll systems and technologies. We also understand the complexity of SOX and SOC2 compliance. This enables us to provide informed advice on the best-practices aligned with these regulations, so your payroll is secure. We’ll also provide guidance on selecting, implementing and optimising automated payroll solutions. 

For organisations with a global workforce, external experts – like Global HRIS – can offer specialised support in navigating international payroll complexities. 

Testing payroll systems

Make sure you conduct regular testing of payroll systems, especially after updates or changes, to identify and resolve any issues before processing actual payments. 

Document payroll processes and policies

Make sure your processes are kept up-to-date. This helps ensure consistency in processing and serves as a reference for your payroll department. 

Contact Global HRIS Today

Find out how we can reduce the risk of payroll errors across your business today. 

Contact Our Payroll Experts 

Read Our HR & Payroll Guides Here:

8 Largest Global Payroll Providers

IR35 Guide To Off-Payroll Working Rules

How Much Does It Cost To Outsource Your Payroll? 

Find out more about how we can help you by calling Global HRIS today on +44 161 317 2903 or get in touch through our website.
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