VCS Blog

17 February 2016

What Are The Most Common Payroll Mistakes?

Posted by VCS Software
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Common Payroll Mistakes

Let’s face it. Payroll is a crucial business practice and not just a twice-a-month annoyance. Paychecks are the primary method for rewarding and retaining employees, therefore late or error prone paychecks can contribute to a disgruntled and unmotivated workforce.

It can be difficult to retain the best employees if you skimp on payroll services. Naturally, the ramifications of some payroll mistakes can be much more egregious than simply discovering an error within your paycheck. Some mistakes inevitably result in jail time. To keep you educated and compliant with the law, we have compiled a post discussing the most frequent and biggest mistakes in payroll as well as some rudimentary tips to avoid these mistakes.

Miscalculating Overtime Hours

It’s well established that employers must pay workers a premium for overtime hours. However, calculating overtime can be puzzling in some instances, especially since employers must follow state and local wage and hour laws. Constructing an easy-to-understand overtime policy is crucial for your company and will ultimately lead to a more productive workforce. For helpful tips on regulating employee overtime hours, click here.

Misclassifying Your Employees And Contractors

Companies must distinguish between an employee and an individual who is working as an independent contractor (for tax purposes). As companies work to become more flexible with their employees, businesses are now hiring temporary workers, independent contractors, and consultants to help fill in the gaps in workers or knowledge. Essentially, independent contractors are brought in to help keep fixed costs down in an attempt to provide more stability for the permanent employees. Misclassifying a worker can be a costly mistake on multiple fronts. If your contractor is actually an employee, you could be underpaying payroll taxes. On average, employees can cost 25-30% more than contractors (Source). For questions concerning how to classify your workforce, review literature found on the IRS resources site.

Poor Record Keeping Practices

Unfortunately, there are many companies who have inadvertently overpaid employees due to errors in data entry, misapplying pay rules and other similar clerical mistakes. Don't forget, your organization must maintain payroll records in chronological history of your employment practices. While it is a nuisance, the alternatives aren't pleasant.

Time Clock Errors

Time clock errors can be costly but are avoidable if proper methods are enabled to combat such mistakes. For instance, automated time clock systems have the ability to remove intentional errors and transcription errors which will reduce payroll costs. Additionally, the ability administrators to manage and monitor time clock entries ensures that attendance issues are quickly addressed rather than waiting for payroll to identify the errors. Other options in time clock validation include biometric identification, a technology that uses hand geometry to verify identity.

Pleading Ignorance

No business is too small, too local, or too simple to have to comply with constantly changing federal, and state regulations. Don’t fool yourself. Negligence is one of the most dangerous payroll mistakes. Whether your payroll services are done in house, or via an accounting or third party service, the correct and timely reporting of all payroll taxes is ultimately your responsibility. Remember: what you don’t know can definitely hurt you.

For information on how an automated workforce management system can assist with the elimination of common payroll errors, contact VCS at

Learn how to combat against numerous hidden costs often related to labor practices, productivity, and time management.