The payroll process requires precision and close attention to detail, because even the most minor mistake can cause headaches and tax penalties in the future. In fact, the IRS collects billions in penalties in a year due to payroll errors. Some of the most common errors in payroll calculations include inaccurate tax withholdings, miscalculating overtime, and incorrect collection of hours worked. With the help of the proper payroll software, you can adjust mistakes before they cause headaches down the road.
Common Payroll Miscalculations
Incorrect Tax Withholdings
Before an employee receives their paycheck, employers are required to withhold social security and Medicare payments and federal, state, and local taxes.
- Federal Income Taxes: Employers use an employee’s W-4 and Employee’s Withholding Certificate to determine how much to withhold for federal taxes.
- Social Security and Medicare Taxes: The rates for Federal Insurance Contributions Act, FICA, taxes social security and Medicare are different, however social security has a wage base limit based on the maximum wage subject to the tax for the year. To determine the withholding amount, multiply each payment by the employee tax rate.
- State and Local Taxes: There are only eight states that do not require employees to pay state income taxes.
The Tax Division prioritizes civil and criminal employment tax enforcement. The United States Department of Justice states when employers willfully fail to collect payroll taxes they are stealing from their employees and the United States Treasury.
It is critical that you have the appropriate work location, so you withhold the proper taxes. If there are improper calculations, the employee can be held liable and forced to pay the money that should have been withheld in a timely manner.
Overtime and Shift Differentials
Depending on the working location, when hourly employees work more than 40 hours a week, with a few exceptions, they are entitled to overtime pay. Under government regulations, employers are required to pay overtime to their employees at a rate of at least 1.5 times their regular pay rate, also known as "time-and-a-half." It is important to note that there is no federal limit on how much employers can pay their employees for working overtime. Since there are circumstances, such as shift differentials or an employee working in a department that has a different base rate, the IRS standard method for calculating overtime is OT= (Base Rate + (0.5 x RROP)) x HoursWorked. Overtime pay can also include shift differentials, incentives, and other forms of payment that are different from an employee’s normal pay. If there is a location payroll adjustment made, it is critical you adhere to the new locations overtime regulations.
A shift differential is the extra money employers pay to employees for working outside their normal working hours. Shift differentials are typically used to incentivize employees to work shifts that are not so popular, like night shifts or weekend shifts. Since the pay is used as an incentive there is no standard way to pay it, it is at your business’s discretion how much you choose to pay employees.
Over or Under Payment
It is critical you capture every moment of labor to ensure employees are compensated for their hard work. According to this EY study, companies spent on average 26 minutes per employee correcting timesheets.
Miscalculations for hours worked usually occur when employees work outside of their normal work hours. This can include working during lunch/breaks, time spent traveling between work locations, or training and other work-related events. Employees can also be overpaid by incorrectly collecting hours. Say an employee forgets to clock out for their shift and they remember hours later, if the mistake is not caught then an employee can be overpaid.
Paid Time Off
Paid time off, PTO, allows employees to have time off while still receiving their normal pay, so they can take a break without affecting their PTO balance. It is important to note that employers have the choice to offer PTO as it is not required by the Fair Labor Standards Act, FLSA.
If a manager fails to accept the request for PTO or if an employee forgets to put in the request, it can result in an underpayment and it is up to the payroll professional to make the correction.
What To Do if a Payroll Mistake Happens
Processing payroll with a cloud-based provider like Greenshades drastically decreases the risk of payroll miscalculation. But we all know that mistakes happen, because nobody, not even the most skilled payroll professional, is perfect. If you are faced with a situation where you need to adjust to a previous pay run, then you need a partner that can help you adjust the values without the headache. Most providers allow you to go back and enter what value the “should be” but you are faced with figuring out the final value on your own. The Greenshades solution does the complex calculations for you by doing the hard work on the back end to figure out the final value, you just enter the correction that needs to be made.
How Greenshades Handles Payroll Adjustments
In the Greenshades online Payroll module, Adjustment Pay Runs are used to remediate mistakes or make changes to the results of an already submitted and processed pay run. The goal of this tool is to provide you with a clear and comprehensive way to make these very important, and potentially complex, amendments.
Greenshades process to approach these problems:
- Check your historical pay run to find the run that needs to be corrected.
- Adjustment Pay Runs will help you determine if an “Adjustment Pay Run” is needed.
- You will then be able to enter the value you wish you entered.
- After entering the new values, Greenshades’ intelligent pay run calculations will determine the earnings, benefits, deductions, arrears, and tax differences between the original run and this new Adjustment Pay Run.
- Upon pay run submission, resulting net checks (positive or negative), and future arrearages, will be generated for the affected employees.
The most important idea to keep in mind when using Adjustment Pay Runs is to always remember to enter the values that you “wish” you had in the first place and let Greenshades do the rest. We take on complex calculations so you can easily adjust values without the stress of manually figuring out each precise calculation.
When Mistakes Happen, Save Time on Payroll Adjustments
Payroll mistakes can be costly, EY reports it can cost an organization nearly $291 to remedy a payroll mistake. It is important that you utilize a solution that can help reduce the risk of payroll errors. If payroll corrections are needed it is important that you catch the mistake and make accurate adjustments before, they create a larger problem. Greenshades works hard to make sure the process of making payroll corrections is seamless. So, you can resume normal operations and your employees can have peace of mind knowing the mistake is taken care of.
Want to learn more about how you can enhance your payroll processing with Greenshades and make payroll adjustments with ease? Contact us at email@example.com.