Common Payroll Errors and How They Can Be Addressed

Photo credit: Elisa Ventur
  • It takes a payroll department an average of two days to resolve a payroll irregularity.
  • Payroll errors often start with other operations and processing, and payroll departments have to catch and fix them.
  • The many moving parts of payroll means more areas of exposure to mistakes.
  • Most errors start with mistakes and problems entering time and timekeeping.
  • Recent payroll technology, when applied, has a side-effect of reducing timekeeping errors.    

Making fixes and adjustments to pay, tax amounts or for other deductions or rewards after payday signifies something failed in the payroll process. We know this is the case, even though, many times, what ends up being labeled as a payroll error starts with other operations and not the payroll department. 

But, payroll is left to resolve the issue, after the fact. 

It takes an average of more than two days for payroll to resolve a payroll irregularity or error, according to a 2019 Bloomberg Tax & Accounting report of payroll issues. According to the 2020 Deloitte Payroll Benchmarking Survey, respondents named the payroll error rate as the number one key performance indicator for payroll operations. For example, just the process of issuing a payroll error or communication takes time and resources.

How Most Errors Begin

There are several areas of payroll that, without proper processes and oversight, can end up causing payroll professionals to stop, research, identify, resolve and then correct. 

The many moving parts of the payroll process means the practice often is exposed to mistakes. These include errors in calculations and in wage payments, and incorrect or delayed changes for employees, plus mistakes made in tax payments and withholding amounts.

The major area that always seems to come up centers on the timekeeping process. The Bloomberg Tax & Accounting report showed that only 83.35% of survey respondents reported having clean time collection runs. 

There are several reasons that accurate recording of work hours is more prone to problems than any other aspect of payroll.

First, there is an inherent reliance on the ability of employees to follow the proper procedures for recording their time. 

It’s great to have each person responsible for clocking in and out of each shift, or to have them ensure time off work is properly and timely reported. Employee self-service programs should make this easier as well. Yet so many — and this includes their supervisors, who often must sign off on time recorded — continue not to pay enough attention to do it right.

Second, time collection systems vary in their ability to keep track of real time worked. Often, in professional circles, those who have to report time using a computer interface have hours included by default, and it is up to them to make adjustments for any additional time worked or time off, and also to categorize those exceptions to the standard hours embedded in the system. 

Other self-service interfaces allow workers to input their daily time for each day at the end of the pay cycle, and, for many, this means no time worked is ever recorded until the last day of that cycle. The person has zero hours until they interface with the system and add them. 

Manual time clocks are now connected to systems that, in some cases, won’t allow a worker to clock in or out outside of the hours they are scheduled to work. Special permissions are needed to have those hours recorded. According to the Fair Labor Standards Act, employees are to be paid for all time they work, and employers have been in trouble with the Labor Department for allowing workers to perform duties “off-the-clock.”  

Finally, and again, primarily with manual time clocks, people can forget to clock out after a shift, or after a lunch break, they forget to clock back in. These anomalies occur frequently, making this initial part of the payroll experience for workers the most fraught for mistakes. Supervisors need to intervene, and payroll likely can get a record of time worked that is not accurate to start processing.

Because they occur before payroll can be processed, time-worked discrepancies, if identified, need to be resolved and this can slow the kick-off of what would otherwise be a smooth calculation and remittance process. 

So what can employers do to mitigate the challenges of collecting and accumulating actual time worked for employees? 

Recently, there have been reports of improved timekeeping due to the implementation of employer integrated earned wage access, or on-demand pay programs. This is because under some larger third-party on-demand pay programs, in order for workers to have amounts available to access prior to payday, they must complete the clock-in and -out process. 

If they fail to clock out, or clock back in, as noted above, there will be no amount recorded as earned for that day and nothing will be accessible to them on-demand, until it is resolved. 

Employers using such systems have seen a marked improvement in this area, with the payroll team noting these initial discrepancies have fallen off for those that use the earned wage access program. 

As technology improves, systems like those supporting on-demand pay are becoming more sophisticated, and some are now used for specific payment-related reporting that can catch not only the failure-to-clock-out issue, but others. Stay tuned.     

PYD

Resources: 

Bloomberg Tax & Accounting, 2019 Payroll Benchmarks Survey Report 

Deloitte Payroll Benchmarking Survey Sponsored by the American Payroll Association and the Global Payroll Management Institute, 2020 

DailyPay.com, Case Study, Starboard Management Group, 2021

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