What mistakes should you avoid when calculating employee pay?

1 Not tracking time accurately

One of the most basic and important aspects of calculating employee pay is tracking the hours worked by each employee, especially if they are hourly, non-exempt, or eligible for overtime. If you rely on manual or outdated methods of timekeeping, such as paper timesheets or spreadsheets, you run the risk of human errors, fraud, or data loss. You should use a reliable and automated time tracking system that integrates with your payroll software and records the actual hours worked, breaks, and absences of each employee. This way, you can ensure that you pay your employees correctly and comply with labor laws and regulations.

2 Not updating pay rates and deductions

Another common mistake that can lead to payroll errors is not updating the pay rates and deductions of your employees when they change. For example, if an employee gets a raise, a promotion, a bonus, or a commission, you need to adjust their pay rate accordingly. Similarly, if an employee changes their tax status, benefits enrollment, or garnishment orders, you need to update their deductions accordingly. You should have a clear and consistent process for communicating and documenting any changes in pay rates and deductions, and verify them before running payroll.

3 Not following tax laws and regulations

Tax laws and regulations can be complex and vary by state, local, and federal jurisdictions. If you do not follow them correctly, you may end up underpaying or overpaying taxes, which can result in penalties, audits, or lawsuits. You should be aware of the tax requirements and deadlines for your business and your employees, and use a payroll software that calculates and files taxes accurately and automatically. You should also keep up to date with any changes or updates in tax laws and regulations, and consult a tax professional if you have any doubts or questions.

4 Not keeping accurate and secure records

Keeping accurate and secure records of your payroll transactions is essential for compliance, auditing, and reporting purposes. If you do not keep proper records, you may face difficulties in proving your payroll accuracy, resolving disputes, or complying with requests from authorities. You should store your payroll records in a secure and accessible location, preferably in a cloud-based system that backs up your data regularly. You should also follow the record retention guidelines and policies for your industry and jurisdiction, and dispose of any outdated or unnecessary records securely.

5 Not communicating with your employees

Communication is key for avoiding payroll mistakes and maintaining a positive relationship with your employees. If you do not communicate with your employees about their pay, you may create confusion, frustration, or distrust among them. You should communicate with your employees regularly and clearly about their pay details, such as pay dates, pay rates, deductions, taxes, benefits, and any changes or issues that may affect their pay. You should also provide them with easy access to their pay stubs, tax forms, and other payroll documents, and encourage them to review them and report any errors or discrepancies as soon as possible.

Calculating employee pay is not a simple or easy task, but it is a vital one for your HR operations. By avoiding these common mistakes, you can ensure that you pay your employees accurately, fairly, and timely, and avoid any legal, financial, or reputational risks.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?