Payroll is something that shouldn’t be stressful, but it often is because of mistakes that could be easily avoided. One small error can quickly create a ripple effect that has longing implications on the rest of your business. That’s why it’s so important to understand the most common payroll mistakes to avoid, especially in three key areas: rate, cost, and time. Getting these right will make your life much easier and avoid a stressful situation down the road.

Mistakes That Affect Accuracy

Getting pay rates right is the foundation of an accurate payroll. If this goes wrong, it’s safe to say that other parts of your payroll will crumble.

1. Forgetting to Update Pay Rates After Raises

Failing to enter new pay rates after a raise or role change can lead to underpayments, corrections, and frustrated employees.

Tip to avoid this: Create a required approval workflow so pay rate changes can’t be finalized until they’re entered in payroll.

2. Misclassifying Employees

You’ll most likely have different employees with different statuses in the company, whether they’re salaried or hourly (or even freelance/contractors).  Miscalculations can impact tax obligations and much more.

Tip to avoid this: Review job roles annually against state and federal classification guidelines.

3. Overlooking Shift Differentials

Extra shifts for holidays or overtime pay can make a difference and not including these adjustments can result in inaccurate paychecks and unhappy staff.

Tip to avoid this: Add differential rules directly into your payroll system so they trigger automatically.

4. Miscalculating Overtime

Overtime rules can quickly get complicated, but staff who put in extra hours want to ensure they’re getting compensated fairly. Using the wrong base rate or miscalculating time and a half is a frequent source of errors.

Tip to avoid this: Use timekeeping software that handles blended rate overtime automatically.

5. Not Recording Bonuses or Incentives

Bonuses, commissions, or even performance incentives need to be entered correctly for employees.  Forgetting them throws off both gross pay and tax reporting.

Tip to avoid this: Require managers to submit bonuses using a standard digital form linked to payroll.

Mistakes That Increase Payroll Costs

Payroll mistakes to avoid that can increase payroll costs are important because they can cost your business real money. Keeping an eye on these financial pitfalls helps you avoid unnecessary expenses.

6. Paying For Unworked Hours

More companies are taking advantage of digital timecards to keep track of hours worked. If you have remote employees, consider a virtual assistant to keep track of payroll sheets.

Tip to avoid this: Transition to digital time tracking with automated rounding rules.

7. Missing Payroll Tax Deadlines

Late tax filings come with steep penalties. This is one of the easiest payroll mistakes to avoid, especially with a clear calendar or automated filing system.

Tip to avoid this: Create automated reminders or use software that files taxes on your behalf.

8. Incorrectly Calculating Employer Taxes

Underpaying or overpaying employer taxes can lead to penalties or year-end corrections.

Tip to avoid this: Reconcile payroll tax liability monthly rather than waiting until year-end.

9. Overpaying Due to Data Entry Errors

Misplaced decimals or typos in salary fields can result in significant overpayments that are difficult to recover.

Tip to avoid this: Require a second reviewer to approve all manual edits in payroll.

10. Failing to Track Benefit Deductions

Forgetting to process insurance premiums, retirement contributions, or other pre-tax and post-tax deductions results in incorrect net pay and compliance issues.

Tip to avoid this: Audit employee deduction reports against benefit enrollment forms quarterly.

Mistakes That Waste Time or Cause Delays

These five mistakes often slow down the process or create unnecessary back-and-forth.

11. Relying on Manual Data Entry

Manual processes are prone to errors and consume an excessive amount of time that could be spent on strategic tasks.

Tip to avoid this: Integrate time tracking, HR, and accounting software to create a seamless, automated payroll flow.

12. Not Backing Up Payroll Data

A system crash or file corruption can erase years of vital payroll and employee records. Recovering this data is often a costly, time-consuming nightmare.

Tip to avoid this: Schedule daily, automated backups to a secure, off-site location or cloud service.

13. Ignoring Compliance Changes

Federal, state, and local payroll laws like including minimum wage, tax rates, and reporting requirements, can change frequently. Failing to keep up can lead to fines and rework.

Tip to avoid this: Subscribe to reliable payroll and HR compliance updates and perform an annual regulatory check-up.

14. Missing or Inaccurate Employee PTO Tracking

Whether it’s vacation time, sick leave, or paid holidays, incorrectly tracking accrued and used Paid Time Off (PTO) leads to employee disputes, time spent correcting balances, and potential liabilities for your company. Not to mention you’ll have unhappy employees.

Tip to avoid this: Use an integrated HRIS or payroll system that automatically tracks and updates PTO balances on every pay stub.

15. Communicating Payroll Information Poorly

When employees have questions about their paychecks or deductions, a lack of clear communication and easy access to pay information can quickly overwhelm the payroll team with repetitive inquiries.

Tip to avoid this: Provide employees with a self-service portal where they can view pay stubs, W-2s, and update personal information, reducing direct inquiries.

Avoid Payroll Mistakes With HintonBurdick

Are you ready for a stress-free payroll in Utah, Nevada, or Arizona? If you’re tired of handling payroll on your own or want to avoid costly errors, our team is here to help. Explore our reliable payroll services with our firm and get the clear and consistent flow for your business that you deserve.