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How to avoid payroll mistakes

Payroll in a business is like breathing in a body. It happens automatically without thinking, but if it doesn’t work, the whole system shuts down.

A system shut down, or death, is what we all want to avoid at all costs. Payroll is out of sight, out of mind, but crucial to the wellbeing of the organization. Humans handle payroll, and therefore mistakes do creep in, but what you want to avoid is the regular occurrence of common mistakes.

Mistake #1: Missing deadlines

Paying employees on time is crucial. Miss a key deadline and the company has disgruntled employees on hand – and with good reason. In Payroll, delivering accurate salaries, on time in employees’ bank accounts must happen consistently.

Equally, missing deadlines for taxes or state-required payments can adversely affect a company’s bottom line with penalties and interest. It is wise to strictly adhere to these deadlines too.

Mistake #2: Miscalculating salaries

Yes, payroll has many moving parts. Commission, overtime, basic salaries, leave tracking, study loans, unpaid leave. Ensure time tracking in the business is up to the job, or employees will lose faith in the organization as an employer and your reputation will be marred.

Mistake #3: Sloppy recordkeeping and back-ups

In the UAE, the authorities require companies to keep payroll records for at least four years. However, leave records are mandated to be kept for three years. It starts getting complicated.

Meticulous recording of timesheets, overtime schedules, leave documentation, both paid and unpaid – all things pertaining to payroll, is essential. Backing up payroll information and keeping it secure is the responsibility of the employer. If the Payroll department fails to keep records tidy, detailed and secure, future audits become a major hassle, and other mistakes will inevitably creep in.

Mistake #4: Inexperienced staff

Ensure payroll staff is well trained and know their stuff. They must be up to date with most recent regulation changes and know what they are doing. Train them in the software the business runs. Ensure they can do the payroll process with their eyes closed. The payroll staff are key to a successful payroll process.

Mistake #5: Wrong classification of employees

Minimum wage, independent contractors, part-time workers, seasonal workers, full-time employees, commission workers. There are many classifications within a company and the broader employee environment for workers. These are often defined within the Labour Law and how each class is treated within the legal realm. If the business classify an employee under the wrong type of worker, it can create under- or overpayment of employees that can turn into an expensive mistake if left undetected.

Prevention is boss

You can use several strategies to improve accuracy and rule out common payroll mistakes.

Outsource

When you outsource payroll, experts work on it. They are up to speed with any and all regulatory changes and your internal resources can focus on business growth. Payroll outsourcing also means you can keep payroll records offsite. Records are meticulously maintained. It basically ticks all the boxes, including peace of mind.

Get the right tools

If you do not outsource Payroll, invest in the best payroll software that suits your business needs and budget. Go one step further and go into the Cloud. There are numerous benefits in having a Cloud-based service. You don’t have to consider where to physically keep your payroll records, and your company and employees can access payroll information securely when- and where-ever they are.

Payroll reports

Once you start using payroll reports, you won’t understand how you managed without them. This is a surefire way to check the payroll process and prevent mistakes. Payroll reports should be part and parcel of payroll software that is worthwhile having. You can run whatever reports you want, but the basic ones would be a summary of all deductions for every employee, the payroll summary report, and a report that checks the cash you need to pay payroll, broken down into categories like salaries, deductions, and more.

Train payroll staff

Ensure payroll staff are up to the minute with correct information, from payroll to deductions to legally required deductions. And that the payroll administrators can handle the payroll process like pros.

Useful checklists

Keep track of all the steps along the payroll process. This way, you are sure to include all the steps required for a successful payroll run. Also keep lists of new joiners, pay changes, deduction changes, and more, in one central place that is accessible and updated.

What to do when you identify a mistake

If you notice a payroll mistake, act immediately. Report the error to everyone involved if you have already processed the payroll: the employee, the organization, the authorities to avoid penalties.

If you identify a small payroll error, cancel the payroll immediately to update and reprocess correctly. You can also run additional, manual payroll with changes for only the affected employees if need be. Alternatively, you can make adjustments in the next payroll run to correct past mistakes.

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