Payroll is directly associated with employee compensation. If the system you use to process your payroll has a weakness, it could affect paycheck accuracy. Payroll involves more than simply compensating your employees for time worked, and inaccuracy may lead to consequences other than paycheck errors.
Employees with direct deposit expect their full wages to be in their bank accounts by payday. Employees without direct deposit anticipate receiving an accurate live check or alternate payment come payday. Correct payroll calculations ensure that employees are not inconvenienced financially on payday.
Employer and Employee Taxes
You must pay the money you withhold from your employees’ paychecks for taxes to the respective administering agencies. You also must file reports with the agencies to report the withholding. Improper payroll calculations can mean paying the wrong amount to the agencies and your employees’ facing problems when they file their annual tax return. You also have your own share of liabilities that you must pay and report. Failure to properly withhold, deposit and report employment taxes can lead to fees, audits and civil and criminal penalties. For example, the Internal Revenue Service reports that a business owner was fined $476,493 and sentenced to 20 months in prison on Sept. 20, 2012, for failing to pay and file employment taxes.
Wage and Hour Compliance
Under federal and state law, you must pay your employees at least the required minimum wage for their time worked. Additional laws apply to different areas of compensation. This includes policies relating to overtime, final wages, employee benefit days such as vacation time and holidays, deductions for wage garnishments, timekeeping, meals and breaks, child labor, tipped employees and supplemental wages including severance pay and bonuses. You also must classify your employees as nonexempt or exempt and meet the minimum wage criteria for such workers. Failure to compensate employees according to federal and state law may lead to audits and penalties from the labor department. For example, the U.S. Department of Labor says intentionally violating federal minimum wage and overtime standards may result in a fine of up to $10,000 and criminal prosecution.
Through payroll accounting, you record, track and monitor your company’s payroll expenses. Your human resources staff tracks certain paycheck deductions, such as health insurance and retirement plans, and paid time off, such as vacation and sick time. When payroll calculations are correct, it helps to streamline payroll, accounting and HR.
Your payroll staff is human, so mistakes are likely from time to time. However, habitual errors may foster mistrust in your employees and cause them file a complaint against you to the labor department. Under federal and state law, you must compensate your employees by the established payday, so if you make payroll errors, resolve them promptly and effectively. For best results, employ a knowledgeable and reliable payroll staff and use software to process paychecks and payroll taxes. If you outsource your payroll to a service provider, always double-check the supplier’s work for accuracy.