Payroll might seem like a very straightforward task on its surface, but it’s not always the case. Of course, payroll departments are responsible for keeping records of employees, their working hours, and paychecks on agreed terms, but it’s also about ensuring and maintaining accurate data, and staying in compliance with the laws so you don’t make any costly errors.
Employers who have been in the business for many years have a great experience with the problems that arise with payroll mistakes and the steep penalties they have to pay for correcting those mistakes.
Here we have shortlisted 5 main tips to help you avoid pitfalls in payroll recordkeeping:
1. Overlooking the need for regular data updates
A major responsibility given to the payroll department is to maintain detailed and accurate employee records for future reference. And ensure it’s in compliance with federal and state laws, as well as with the organization’s policy.
Payroll departments must keep a record of employee details, tax details, payment, and leave deduction details, bonuses and incentive details, background check details, and credit records of all their employees to avoid and prevent the company from any foul claims. It is also a requirement of federal and state laws, that organizations must keep records of employees even after they have been terminated or they have resigned, for a certain period of time.
Organizations can face heavy penalties if they are not able to provide updated data whenever it is required. This could lead to some very heavy claims or suits against the company.
2. Incorrect Tax Rates
Tax rates change more frequently than before. Updating the payroll records with the new tax laws is not an option but a mandatory and enforced law. Make sure you don’t overlook the need to verify these changes.
Multi-national organizations with employees in many states or countries might have an extra load of work to stay compliant and form accurate calculations of taxes and paychecks. This is a critical step during tax payments that payroll departments must ensure its proper accuracy or it will cost the company great deals from the IRS and DOL.
3. Incomplete Records
A single solution to resolve payroll issues and ensure correct tax filing, or to make sure you avoid legal pitfalls is to have complete and accurate records of these events and employees. Incomplete records mean loopholes you can’t fill to save the day.
4. Miscalculations
Miscalculations in daily paychecks, overtime wages, bonuses, and tax returns are very common in organizations. But ensuring to correct those mistakes is equally critical. In larger organizations, a single miscalculation can lead to a completely wrong analysis which can create red flags for the IRS to run audits.
5. Inadequate and improper recordkeeping
Understanding the above points, we have now understood how important payroll records are in our organizations. It’s also important to keep these records adequately and properly, so there is no harm to them. Losing these records will bring you circumstances you wouldn’t want on your plate. Hence, it’s important to choose a proper format for keeping records. Digital record-keeping is advisable for large organizations.
Final Words
Run regular audits and check analysis reports to make sure you are in compliance with the laws, and no errors are made during recordkeeping. It’s initially what would save you from a downfall or a costly lawsuit.
