The High Cost of Payroll Errors: What to Know and How to Prevent Them

A recent study about payroll and payroll errors by Ernst & Young, a multinational accounting firm, surveyed over 500 companies (from 250 to 10,000 employees) and found that:

• Individual payroll errors cost an average of $291 to fix
• An average of 15 errors per pay period were reported
• The most common errors were missed punches and other time/attendance mistakes
• Sick time and paid vacation errors were the second most common type of issue
• At an average of $6,800 for input errors, benefits and healthcare deductions make for some of the more expensive errors

When HR processes are handled manually, nearly every step of payroll creates an opportunity for mistakes. As identified by the Ernst & Young study, here are just a few of the most common types of payroll errors:

Common payroll errors

• Missing/Incorrect Time Punches – On average, each employee forgets to punch the clock at least once a year.
• Miscalculating Pay – Employees deserve the correct rate of compensation for both regular and overtime hours.
• Miscounting Employee Hours and Overtime – You can’t provide accurate pay when the tallies of employee hours and overtime are unreliable.
• Incorrect PTO Calculations – Call it “Paid,” “Personal” or “Planned” Time Off, but there’s no multiple choice when it comes to paying employees for PTO and employee leave.
• Faulty PTO Accruals – Workers need to know how much PTO they have available, often on short notice.
• Missing Expenses – When collecting receipts and processing forms, expenses add opportunities for human errors.
• Misclassification of Employees – Classify exempt employees and contractors correctly to avoid fines.
• Misprocessing Garnishments – Different types of wage garnishments (child support, taxes, and fines) can affect each pay period.
• Shift Availability – Overscheduling and understaffed shifts are preventable with upgraded scheduling software.
• Failing to Report Taxable Compensation – Make sure you know which innovative, new perks and amenities qualify as taxable income.

How much time do payroll errors take away from other HR tasks?

Some mistakes are more expensive than others. Mistakes when setting up benefits administration can have a much bigger impact than a single pay period miscalculation. Most scheduling and payroll issues are resolved without additional charges or fines to the company, but those routine corrections still require the time and labor of HR staff. 

According to the study by Ernst & Young:

• The average employee has missed a time clock punch about once a year

• Over the course of the year, correcting those missed punches will take about 26 minutes per employee
• Missing expenses take about 15 minutes to resolve per employee, and uniform charge errors take about 11 minutes

Depending on the size of your workforce, these routine corrections can take a lot of time for HR staff, and some corrections may require paycheck adjustments.

How can your company prevent payroll errors?

Prevention is the best solution to HR payroll errors. Integrated software works automatically without the risk of manually copying and transferring data between spreadsheets.  

Establish clear policies for payroll

Every company with an HR department needs clear policies to manage and verify employee data. Use software for remote onboarding and you can automatically transfer essentials like contact information.

Nobody wants to spend their first day in the office manually re-entering the same information on repetitive forms, and that traditional approach to onboarding paperwork increases the number of opportunities for careless mistakes.

Evaluate your current payroll provider and processes

Could you streamline your payroll process with a new provider? It’s easy to settle for “good enough” when you don’t know how much you’re overspending. Routine expenses add up, and advanced software offers efficiency that simply wasn’t possible a decade ago. Not all problems are equal. Apply a compliance-first mindset to make sure you’re keeping up with the current legal requirements. Specialized HR software can provide automated alerts and enrollment period notifications, helping ensure compliance going forward.

Automate and integrate payroll processes

It’s not polite to talk about it out loud–especially in an HR office–but human beings cause a majority of the problems in the workplace. You can provide extra training and explain the importance of being careful, but some mistakes will continue to happen.

Automation with HR software allows you to eliminate the biggest source of miscalculations and errors. Use integrated software to connect scheduling, timekeeping, benefits administration, and other HR systems. The right software upgrade can empower employees and HR staff alike. Instead of spending hours correcting missed punches and checking PTO, your HR staff can tackle more rewarding challenges like workplace culture and productivity.

Develop a detailed payroll calendar and checklist

As you get more organized with your payroll system, you’ll need schedules and checklists to keep on track. Each stage of the employee lifecycle needs different services from HR staff, from onboarding to COBRA administration. Some employees will need to be notified about open enrollment periods and other personalized issues.

The right software allows you to set automated alerts for everything from tardiness to excessive overtime. Today’s software doesn’t actually manage employees on your behalf, but it does make it easier to catch problems when the first warning signs appear.

Keep track of the latest laws and regulatory updates

Taking your compliance-first mindset, make sure to follow along with changes to laws and regulations. In addition to the relevant federal agencies, you have to keep up with state and local requirements.

HR service and software providers should be invested in helping you maintain compliance and follow emerging guidelines. Fines and penalties can get a lot more expensive than payroll corrections. 

However you choose to manage your workforce, HR software can prevent common mistakes and improve compliance. In the ever-changing world of business labor and regulations, the latest software keeps routine tasks from getting too complicated. Improve the efficiency of your HR team by reducing the amount of time and money spent correcting payroll errors.

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This article is part of our comprehensive payroll management series.