Avoid These 3 Payroll Mistakes
21 Sep 2020
Investing in payroll software is a major step towards efficiency for any organisation. Payroll software can bring about numerous benefits for your organisation. Reduction in payroll errors, faster payroll processing time, and greater efficiency are some of the benefits that payroll software bring about.
However, using payroll software is not all rosy either. Payroll software, if not used correctly and appropriately, can have its limitations as well.
Here are some of the common mistakes that payroll professionals make when using payroll software.
Incorrect setup of payroll software
Incorrect setup of the organisation’s payroll software can have a detrimental impact on payroll calculations. While most payroll software would have predetermined settings on their payroll software, some settings still need to be configured manually depending on the organisation and based on local labour laws.
For example, most payroll software would have taken into consideration basic salary items such as base salary, fixed allowances, tax rates, and overtime. However, there may be certain allowances that are specific to certain employees such as shift allowance or transportation allowance. These specific salary items will then need to be manually configured into the payroll software to ensure that they are captured during payroll calculation. It is fairly common for payroll professionals to miss out on this step during the setup of their payroll software, resulting in payroll calculations differences.
Similarly, tax obligations vary from country to country and it is imperative for payroll professionals to ensure that tax calculations on the payroll software is configured correctly. This is particularly crucial for those who handle regional payroll processing. Incorrect tax calculations can lead to wrong salary calculations for employees, resulting in over-reporting or underreporting of taxes for both the employee and the organisation. Not only does this affect employees’ morale due to incorrect salary disbursement, it can incur hefty fines for the organisation due to incorrect tax reporting.
The best way to ensure that your organisation’s payroll software is set up correctly is to have a clear checklist of your salary items, the countries that you manage and to work closely with your payroll software provider to ensure that these salary items are set up correctly. If possible, get your payroll software provider to manage these configurations so that you can avoid making any payroll software setup mistakes.
Wrong bank account details
One common mistake that most payroll professionals make is failure to verify employees’ bank account details. There are times in which employees may have accidentally provided incorrect bank details to HR or incorrect data entry of bank details into the payroll system, delaying salary disbursement as a result.
Thanks to improvements in payroll software today, some payroll software is able to automatically verify employees’ bank details when they are keyed into the system. For instance, validation of the number of digits on the bank account number. Most payroll software also allows for bulk upload of employees’ bank details into the banking portal for direct deposits, minimizing the need for manual data entry that has the risk of human error.
Given that payroll processing and salary disbursement takes time, it is crucial for payroll professionals to understand the time required for banks to process salary disbursements. This can help to minimise the chances of late salary disbursements and allow sufficient processing time from the banks’ end as well.
Poor planning of payroll processing schedule
Many payroll professionals make the mistake of not having a payroll processing schedule. Not only does this delay salary disbursements to employees, payroll professionals are likely to rush through payroll calculations in efforts to ensure that salary is disbursed to employees on time, increasing the likelihood of making payroll calculation errors.
To minimise the problem of rushing to ensure payroll is processed on time every month, it would be good to have in place a payroll schedule for the entire year. Plan ahead by taking into account the bank’s processing time, any public holidays, as well as the time required for payroll to be calculated, checked and approved by the appropriate senior staff. This allows the payroll team to plan ahead and avoid rushing to meet payroll deadlines.
Most payroll software today comes with a calendar functionality. This allows payroll staff to input important dates such as monthly payroll cut-off dates or salary disbursement dates. Often, public holidays and local tax deadlines would have already been incorporated as default settings in the payroll software. Nonetheless, it is always good to cross-check to ensure that the settings are aligned with your payroll schedule. Concurrently, it might be helpful to set up calendar alerts in your payroll software so that you will be prompted when important payroll dates are drawing near, such as payroll cut-off or tax filing.
Having highlighted these common payroll mistakes to avoid, it pays to take a second look when running payroll on your payroll software and ensure that you have covered all grounds before you proceed. This can help your organisation to avoid costly payroll mistakes and assure employees of timely salary payments as well.