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Top 15 Payroll Mistakes to Avoid by Rate, Cost and Time

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    Payroll mistakes can harm businesses and their employees. But organizations that rely on a payroll process that doesn’t guide workers to find and fix mistakes before submission can expect a 20% error rate. Does your payroll technology truly put employees first? Read about 15 of the most common payroll mistakes you can expect if you continually rely on outdated tools.

    Mistakes happen, sure. But should companies expect employees to accept errors with their payroll?

    Not if they want to keep them. Rampant payroll mistakes don’t just drain businesses — they harm employees, too. According to a Morning Consult survey commissioned by Paycom, 86% of Americans would suffer a negative impact from just one missing or delayed check.

    It’s no wonder 91% of HR professionals told OnePoll in a study commissioned by Paycom that payroll mistakes break trust between employees and employers.

    Payroll mistakes drain businesses, too. On average, Ernst & Young (EY) found fixing a single payroll mistake costs a company $291. And that doesn’t cover the risk of fines and penalties from noncompliance. EY researched U.S. businesses with 250 to 10,000 workers and spoke to over 500 individuals who interact with the payroll process.

    If payroll errors are so detrimental, they can’t be that common, right? Wrong. Especially when you consider EY found businesses using a traditional payroll process — one that doesn’t let employees verify their pay’s accuracy before it runs — can expect a 20% error rate.

    So what do payroll mistakes look like, and which ones hit the hardest and most frequently? Luckily, EY collected data on that, too. Let’s take a deeper look.

    How common are payroll mistakes?

    EY found 1 in 5 of the average company’s payrolls over the course of a year contain errors. The sources of errors range from precarious data reentry to widespread oversight, but the outcome remains the same: Payroll mistakes chip away at the bottom line. While the most egregious errors tend to stand out, the seemingly small errors hit ROI and productivity hardest. Because they add up.

    How much money do companies lose to payroll mistakes?

    While the average payroll error costs a business $291, this doesn’t paint the full picture. Each incorrect payroll carries a direct cost to account for:

    • voids
    • wires
    • reversals
    • paper checks
    • and other costly solutions

    But that’s not all. Payroll mistakes also carry their own indirect cost in labor. After all, somebody has to make the corrections.

    One financially egregious mishap, unentered sick time, reaches $705 — more than twice that of the average payroll issue. And if it happens for one employee, it’s not a stretch to assume an issue that severe shows up again in a broken payroll process.

    Considering their weighted average, a company with 1,000 employees could lose up to $922,131 due to payroll mistakes. An enterprise with 5,000 workers would waste over $4.5 million a year to lost productivity.

    What are the most frequent payroll mistakes?

    The volume of payroll errors an organization has changes depending on its industry, head count and other variables. For example, a fast-food restaurant supported by hourly, part-time employees won’t necessarily experience the same issues as a law firm filled with salaried attorneys.

    Even so, certain errors hold higher frequency across the board. Consider these five common payroll mistakes EY calculated the average company could face per year for every 1,000 employees:

    1. Missing/incorrect time punches

    If employees are expected to clock in, you can expect a flubbed punch every once in a while. Unfortunately, EY discovered “every once in a while” doesn’t capture the severity of this consistent botch: Businesses could expect 404 time-punch errors — that’s roughly four fixes for every 10 employees.

    2. Missing expenses

    Team outings. Work lunches. Business trips. These are just a few of the scenarios that call for an expense request. Of course, if there’s an opportunity to submit an expense, there’s a chance to leave the reimbursement out of an employee’s check. Especially with an outdated system. EY estimated businesses scramble to find 229 missing expenses, or about three per worker, annually.

    3. Incorrect PTO calculations

    Employees who earn PTO will eventually take it, right? Absolutely, but they might think twice if they can’t trust their company to accurately record it. Employers miscalculate PTO 149 times, according to EY.

    4. Shift availability

    Headaches are inevitable when companies incorrectly schedule employees. But this pain morphs into a migraine for businesses relying on outdated payroll. EY estimated 147 errors involving hours and scheduling.

    5. Faulty PTO accruals

    It’s one thing to have inaccurate PTO. But businesses have an even bigger problem on their hands when it’s not accruing altogether. EY found PTO fails to accumulate an average of 120 times.

    What are the most expensive payroll mistakes?

    Every action HR takes correcting payroll has a price. And according to EY, they add up fast. In fact, the average error costs $291 to fix. A mistake could entail any combination of:

    • voids
    • wire transfers
    • last-minute audits
    • rushed paper checks
    • long conversations with employees

    It doesn’t take long for a swarm of mistakes to eat away at an organization’s revenue. After a one-year study of a 1,000-employee company, EY estimated the annual cost of rectifying the business’s payroll errors was $922,131.

    How did the company rack up such a terrible tab? On average, EY calculated these to be the costliest payroll mistakes:

    1. Unentered sick time

    Employees accumulate sick time for when they need it most. Coincidentally, it’s also the most expensive payroll mistake when it goes missing. EY found addressing unentered sick time costs companies $705 per incident.

    2. Unentered new hires

    Picture this: You just found a fantastic candidate. After a few weeks, you’re confident you made the right call. You’re making your way through the workplace, ready to congratulate their early excellence and … you see them in HR’s office as you pass by. They look panicked, and for good reason. They didn’t get a check on their first payday.

    It happens more often than you think. Besides the panic and broken trust, unentered new hires also put companies out $635 per employee.

    3. Failed visa status update

    Depending on your industry, there’s a chance you rely on employees from across the globe. That’s great for a ton of reasons! But when updating visas goes wrong, it’s horrible for a company’s budget. Each visa status update error costs $615 on average.

    4. W-4 setup error

    If you run a business, you’ve dealt with taxes. It can already be a challenge to ace compliance without the right support. Stacking an outdated payroll process on top of it? That makes a critical process more complicated and costlier.

    When it comes to one of the most common tax documents — the W-4 — fixing an incorrect form typically costs $539.

    5. Meal plan error

    Free or subsidized meals are usually an awesome perk. But when they’re improperly applied to payroll, it’s the equivalent of a culinary disaster. The average meal plan error costs $499 to fix.

    What are the most time-consuming payroll mistakes?

    What could your business accomplish in half a year? Maybe it’s rolling out a game-changing campaign or an impressive new employee wellness initiative. Whatever it is, you probably want it to be more productive than fixing payroll errors that could be prevented.

    Payroll professionals would likely agree, given they waste an average of 29 full-time workweeks a year correcting payroll, according to EY. So where does that time go exactly? Here are the five most prolific time thieves of a 1,000-employee company per year:

    1. Time punches

    Given they’re the most common error, it may come as no surprise that faulty time punches are also the most time-consuming. EY estimated businesses lose roughly 440 hours — 11 workweeks — fixing these issues.

    2. Expenses

    Employees expect to get reimbursed. When it doesn’t happen correctly, payroll pros can expect hours of trying to make things right. Specifically, EY counted an average of 257 hours for companies to address erroneous expenses.

    3. Uniform charge errors

    Ideally, something consistent wouldn’t need to be corrected very often, right? Maybe not, but in the seemingly off chance a uniform charge issue derails payroll, EY found it could waste 188 hours of HR’s time.

    4. Sick time

    The cost of fixing unentered sick time is already nauseating. And the time it takes to do so won’t sit on an employer’s stomach well either. EY discovered organizations sink 135 hours into fixing sick time errors.

    5. Health savings plans

    Health savings accounts (HSAs) can come in handy for employees who anticipate regular medical expenses or even those saving for operations like LASIK. When these plans are miscalculated, however, businesses lose 130 hours correcting them.

    How much time do HR and payroll professionals waste correcting payroll mistakes?

    EY found, on average, a full-time payroll employee spends over half the year (nearly 29 weeks) correcting the most common payroll problems. This time investment carries its own price tag depending on the involved employees’ salary, but it takes away from the entire organization, too.

    Some HR professionals are forced to spend most of their time adjusting payroll records and correcting issues that could’ve been avoided. Doing so takes away from the opportunity to create strategies that enhance:

    Like the most expensive errors, the most time-consuming payroll corrections involve:

    1. time punches
    2. expenses
    3. uniform charge errors
    4. sick time
    5. health savings plans

    Time punches alone account for 11 40-hour workweeks, with expenses following at roughly six and a half weeks. No matter the type of error or how large the payroll is overall, fixing issues is an unnecessary time sink.

    Which payroll mistakes risk legal issues for companies?

    Beyond their average estimated cost, every mistake — from misclassifying independent contractors to missing due dates — carries the potential for litigation. In fact, nearly 1 in 6 (14%) respondents surveyed by EY said their company experienced legal, compliance and regulatory issues due to inaccurate payroll in the last year.

    EY even found businesses could pay up to $250,000 a year in:

    • legal costs
    • settlements
    • regulatory fines

    That’s not even considering unpaid IRS payroll taxes from issues related to incorrect W-2s and W-4s.

    It’s not just about money, either. Almost half (44%) of the companies that faced legal issues were forced to cut staff. Even if a legal issue doesn’t force an organization to furlough or lay off employees, it could still sabotage the trust workers have in their employer.

    Retention is essential for organizations to succeed; preventable issues like payroll errors push employees away.

    How do companies prevent payroll mistakes?

    While companies can’t technically stop payroll mistakes, they can prevent their consequences. All it takes is catching them early. It might sound odd or even impossible, but it’s easier than you think.

    In fact, most employees demand this capability. In a Morning Consult survey commissioned by Paycom, 70% of employees said the ability to view their payroll and fix errors before payday improves their financial outlook and job satisfaction. So how do businesses deliver on this expectation?

    Consider HR tech like Beti®, for example. It’s Paycom’s employee-guided payroll experience. It automatically leads workers to find and fix payroll errors before payroll runs. This prevents unchecked mistakes from harming your employees and the bottom line.

    Read our white paper to dig into the staggering consequences of payroll errors. And explore Beti to learn how it gets ahead of costly mistakes.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.