Payroll Pitfalls

8 Common Payroll Pitfalls Facing Staffing Agencies

Making sure that employees’ paychecks are correct and on time – every time – goes a long way in keeping them satisfied. If your staffing agency fails to pay employees correctly, watch out for poor performance and low morale. And that’s just the beginning.

At least 33 percent of businesses make payroll mistakes, according to the IRS. And, almost 40 percent of small businesses face an average IRS penalty of $845 a year. Errors such as failing to pay the correct amount of state and federal taxes or not documenting payroll records will place your staffing agency in hot water. Tack on potential litigation or other legal matters such as labor court actions and your business is in even bigger trouble.

Here are the eight most common payroll problems:

  • Becoming a victim of payroll fraud
  • Relying on a single person to handle payroll
  • Missing deadlines
  • Failing to save payroll documents
  • Forgetting to record paper checks
  • Setting up payroll incorrectly
  • Running payroll too late
  • Miscalculating overtime

Steps to prevent payroll-related headaches

Improve your payroll processes to avoid problems with these tips:

  • Split payroll assignments among different employees thereby minimizing the chance of payroll fraud happening. If only one person is running your company’s payroll system, it’s much easier for fraudulent activities to take place and harder to spot.
  • Divide responsibilities for timekeeping, updating employee information, payroll authorization, and reconciling payroll among multiple department team members. This keeps the entire workload from falling on one person and limits opportunities for fraud.
  • Maintain a regularly updated payroll calendar that lists all federal, state, county and municipal tax deposits and filing deadlines for the current year and the upcoming one.
  • Keep your payroll records for a minimum of the last three years, but find out what your state requires by contacting the state labor office. Generally, your company is required to hold on to the following records: I-9s, W-4s, timesheets, and payroll files (tax forms, pay stubs, etc.).
  • Make sure to record all information regarding paper checks given to employees right away. Immediate documentation will keep your books balanced and your tax deposits current. Failing to record a paper check is a costly mistake.
  • Withhold the correct amount of taxes from employees’ paychecks to ensure your payroll is set up correctly. If you don’t have the know-how, hire an accountant who has experience in this arena or consider using a payroll service. If you choose to do it yourself, tap online information from federal, state and local government websites.
  • Use a payroll service and avoid having a late payroll. Otherwise, you may end up paying a lot more than you expected because of fines.
  • Look up the rules for paying overtime by contacting the Department of Labor and use its overtime calculator to determine the correct overtime compensation.

Ready for terminations?

Not only are employee terminations – whether via firing, layoff or resignation – challenging to deal with, they also require special preparation. Final paychecks must be issued immediately or you risk being sued for failing to comply with labor laws. Plan ahead for these events by ensuring payroll team members are trained in these matters, and capable of logging into the payroll system and quickly processing the paycheck or payment.

With proper planning …

Ever heard the saying “Proper planning prevents poor performance?” Well, take it to heart when it comes to your company’s payroll deadline. Here’s wishing your staffing agency a smooth payroll experience.