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Why Avoiding Payroll Errors Is Your Most Important Job (Part 1 of 2)

Posted on Mon, Jan 22, 2018 @ 08:00 AM

An estimated 152 million U.S. workers and their families depend on payroll professionals to get it right every payday. It’s a critical job for all kinds of reasons. Here are just three:

  • Nearly six in 10 of those U.S. workers and their families are living paycheck to paycheck.
  • 82 million new hires would leave their jobs if their first paycheck was wrong.
  • The IRS levied $4.96 billion in civil tax penalties against U.S. businesses for payroll errors and violations in 2014.

Yet only 13% of payroll professionals believe that the paychecks they issue for hourly workers perfectly represent the hours worked and the pay due.

Getting paid is what defines work — so you’d better get it right

Being paid is literally what defines work. As Mollie Lombardi, co-founder and CEO of Aptitude Research, wrote, “If you can’t get [payroll] right, really nothing else matters. And you have to get it right for compliance reasons, as well as for your employees. Nobody likes surprises, particularly when it comes to their money.”

At the same time, payroll has become an increasingly complex process. Federal, state, and local payroll tax laws are frequently changing and becoming more complex. The information needed to process payroll comes from more sources than just the employee’s timecard. Along with that complexity has come greater risk of getting things wrong.

Payroll is no longer just about payroll; it’s about managing employee data — the handling, the control, and the security of data.

Avoiding Payroll Errors

Yet it’s still often done by hand

Despite the increased complexity of payroll and compliance, many companies are still using manual methods to get the job done. An estimated one in three employees who are required to input their hours each pay period use a timecard or timesheet (rather than a software application or even a time clock).

Consider the implications of that number. It means the time being reported by about 30 percent of all employees who input their own hours is far likelier to be wrong compared with hours tracked with an automated system. The time entered by those workers is also more likely to lead to errors in payroll calculations and data entry, and to be misrepresented (either intentionally or accidentally).

Even a little improvement can make a big difference

When it comes to payroll, perfection is hoped for but rarely achieved. This is especially true with large companies. Even organizations that perform in the top tier of their industries don’t get payroll 100 percent correct. In fact, top-performing companies have an average payroll error rate of 0.7 percent per pay period — only five points less than the peer average of 1.2 percent. But that relatively small difference makes a significant difference on the bottom line. The span of five points amounts to a cost of $22,695 in annual payroll for every 100 employees, based on the average national weekly earnings rate of $907.82.

This article is continued in "Avoiding Payroll Errors May Be Your Most Important Job -- Here's Why. (Part Two of Two)"

Reducing Payroll Errors


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