Payroll processing is a necessary part of having employees. It can seem simple at first glance, but when you start adding in things like overtime and vacations, the payroll process can start to get complicated. Once you realize that you always have to deal with timekeeping errors, requests for verification and various regulatory compliance issues, payroll can become an absolute headache. This is especially true for small businesses with limited in-house resources. That’s why payroll services for small businesses can be a lifesaver.
Payroll Mistakes Happen
There are several ways that mistakes can happen in payroll processing.
- Hourly employees may forget to clock in or to clock out. These mistakes must be corrected, opening the door for issues when it comes time to pay employees.
- Paid time off may not get credited. When employees take paid vacations, parental leave, holidays, personal days or sick days, payroll mistakes can happen if the paid time off is not applied correctly.
- Overtime can be forgotten. Hourly employees who work more than 40 hours a week are entitled to overtime, and some states also have daily overtime rules. According to SHRM, Alaska, California, Nevada, Puerto Rico and the Virgin Islands all require overtime when an employee works more than eight hours in a day, while Colorado’s daily overtime rule kicks in at 12 hours. Oregon’s overtime kicks in at 10 hours but only applies to the manufacturing sector. All these differences can make compliance especially difficult for employers with workers in multiple states, and the rise of remote work is making it even more challenging to figure out which laws apply.
- Special situations may lead to mix-ups. Even if your payroll processing runs smoothly most of the time, disruptions in routine can make it difficult to manage payroll accurately. For example, maybe one of your workers needs to travel for business, so you must figure out which hours need to be compensated and whether overtime applies.
- Direct deposit mistakes may prevent payments. If an account number is entered incorrectly, for example, the employee may not receive the paycheck.
- Worker classification can impact payroll. Different rules apply when you pay contractors versus when you pay employees, so worker classification errors can lead to payroll errors.
Benefits, Timekeeping and Compliance Can Be Impacted
Employee pay is often closely connected to employee benefits and, by extension, various regulations related to those employee benefits.
For example, employees may pay their share of health insurance and various voluntary benefits through payroll deductions. This means a mistake in their paycheck could also impact their benefits. Likewise, keeping track of hours can be important in determining which employees are eligible for benefits.
Accurate timekeeping is also important when determining whether certain regulations apply to your company. Under the ACA, an employer is considered an applicable large employer (ALE) if it employs at least 50 full-time equivalent employees. Determining whether an employer has 50 full-time equivalent employees is not as simple as counting the number of workers who you consider to be full-time employees under company policy. Under the law, employees are considered full time if they work at least 30 hours a week, and hours worked by part-time employees also need to be included in the calculations.
Payroll Errors Cost More Than You Think
There’s a good chance that many of your workers are living paycheck to paycheck. A survey from LendingClub and PYMNTS.com found that 61 percent of consumers are living paycheck to paycheck. Even among workers earning $100,000 to $150,000, nearly half say they live paycheck to paycheck.
If one of those paychecks is a little lighter than expected, your workers are probably going to notice. They’ll probably be pretty upset about it, too. Mistakes may make workers feel like they can’t trust their employer, which can hurt morale, productivity and retention.
In some cases, mistakes may even lead to expensive lawsuits. According to HR Morning, an employer ended up having to pay out nearly $50,000 because it failed to pay an employee $608.05 in overtime for travel time. The mistake led to a lawsuit, and the court ruled that the employer had to pay the $608.05 plus penalties, along with $41,333 in legal fees that the employee incurred. It all added up to $42,459, and that doesn’t even include the employer’s own legal costs.
Mistakes involving an overpayment might not lead to lawsuits, but they still mean the employer is paying more than it should. Regardless of how it happens, payroll mistakes can be expensive.
The Benefits of Using a Payroll Service
Payroll processing can be complicated. Small businesses are often hurt the most because they may lack the resources needed to deal with payroll issues, but they may also lack the funds needed to cover expensive payroll disputes and legal costs.
Outsourcing small business payroll services can be a smart solution. By outsourcing payroll services, small businesses can enjoy the following advantages:
- The business uses fewer resources on payroll administration activities that may include payroll processing, employment verifications and making adjustments to payroll. Outsourcing payroll services for small business allows these in-house resources to be used on other endeavors that will help the business grow and thrive.
- The business benefits from the payroll expertise of the payroll service provider. A small business cannot be expected to be an expert in all things, and this includes payroll processing. However, this lack of expertise can result in rookie mistakes. A payroll service provider that focuses on payroll processing can provide the expertise needed.
- Payroll service providers may also provide additional services. For example, these service providers may be able to help the small business tackle time and attendance issues or resolve timekeeping problems. They may also be able to provide compliance support for payroll and timekeeping regulations.
- The business can access insights to support more informed decision-making. If the payroll provider offers reporting, these reports can be used to gain insight into payroll issues.
Online Payroll Services and Payroll Software
In the past, most payroll processes were done manually. Sometimes, handwritten timecards were used. Thankfully, there are now better ways to handle timekeeping and payroll. With modern payroll software, many human errors can be avoided. These systems can also help HR teams save time so they can focus on other matters.
There are many payroll systems available to help employers of all sizes, whether they are small businesses, medium-sized businesses or large businesses. When choosing the best payroll service for small businesses, it’s important to look at the needs of the employer in order to find a suitable match.
How can Higginbotham help your business?
Higginbotham offers HR services, including payroll services. By using a payroll service provider, you can streamline your payroll processing, simplify compliance and avoid clerical errors. Our payroll services include remote processing, employment verification and ad hoc payroll reports. We can also assist with timekeeping issues, help identity the best payroll system for your goals and assist with ACA filing.
Say goodbye to payroll headaches. Embrace payroll services for small businesses. Learn more.