5 Payroll Mistakes Averted With a Joint Online Payroll/Time Tracking Software

By Katherine Muniz
June 14, 2016

If you were faced with the chance to give a young, fresh-faced new business owner a piece of advice, what would it be? Chances are that you’d tell them despite all the hurdles, running a business is worth it.

However, there are probably other things you wish someone had told you before you started. For instance, just how time-consuming dealing with payroll is. Payroll is one of the less favorable aspects of business management, but it’s one that is necessary.

You may have innocently been under the impression that payroll is as simple as doing a little math to ensure you pay your employees accurately.

False. Complying with payroll rules requires constant training, patience, and most of all, time. Luckily, payroll today is less complex to manage than it once was, largely due to online payroll software applications that take care of many of the tasks business owners used to have to tackle manually.

Here are five payroll mistakes that online payroll solutions like FingerCheck360 eliminate:

Incorrect payroll calculations

Calculating time cards manually is a time-consuming challenge. If you’re the payroll representative for your company, not only will you need to calculate the hours worked for each employee for every day worked, you’ll also need to calculate more complex rates of pay, such as overtime pay, pay differentials, blended overtime rate calculations, and more.

Given all of the varying rules that exist within your company and the complex mathematical formulas that must be correctly applied for each individual calculation, the risk of clerical errors when totaling hours manually is substantial.

Take, for instance, calculating gross to the net on off-cycle (one-time) checks, i.e. one-time bonuses, corrections to prior payments, early termination payments, etc. Options do exist to assist you in calculations, but overall, an online integrated solution that allows you to model payments or create a hypothetical scenario is much more useful for payroll representatives.

Your payroll software may have an application that allows you to create a calculation outside of the payroll schedule.

Delayed payment due to late timesheets

The American Payroll Association states in its APA member e-book, “Top Payroll Questions and Answers for 2015,” that even if an employee submits a timecard late, it is the supervisor’s responsibility to inform payroll of the hours worked in order to avoid wages being withheld (a big no-no).

However, when payroll is dependent on employees’ submitting time cards, a last-minute hiccup could potentially delay payroll. To avoid cross-departmental coordinating each pay period, take the employees out of the process entirely by implementing a professional time clock system that integrates with your payroll provider (or better yet, an all-in-one payroll system like FingerCheck360) and syncs digital timesheets in an instant.

Incorrectly calculating taxable wages vs. gross wages

It’s your responsibility to calculate your employees’ gross pay down to their actual taxable wages. Certain benefits are protected under the tax law, allowing tax savings for both employee and employer.  These are sometimes called pretax benefits.

  • For example, Mary Jones has medical and dental coverage under her employer’s health plans.  The deduction from Mary’s paycheck for these benefits is $100.00 per pay period.  Her gross pay is $1500 and the $100 is deducted from her gross pay before calculating her Federal, state, and local taxes.  So instead of taxing her gross pay at $1500, her taxable gross is $1500 – $100, or $1400.

States sometimes have different rules regarding how gross pay is treated, for instance, New York City’s requirement that companies of 20 employees and higher must allow employees to use pre-tax earnings to buy rides. The payroll representative must calculate employee’s gross pay down to their actual taxable wages. What remains is their taxable pay, which pays tax based on this amount.

A correctly programmed online software should be able to do this calculation based on the employee’s personal data and work location.

1 California vacation rules are complex; please consult your provider to ensure you are compliant.

Accurately calculating and paying OT during a week containing a paid holiday

Federal law requires that overtime (premium pay) be paid to your non-exempt employees after 40 hours of work.  What if a holiday falls during the workweek?  What happens if an employee works additional hours?  Here’s an example:

  • Michael Smith works the following hours: Monday – 8 hours holiday (paid); Tuesday – 9 hours; Wednesday – 10 hours; Thursday – 8 hours; Friday – 8 hours.  Total hours to be paid: 43 hours.  The next question is: do the holiday hours count towards the hour’s threshold for premium (overtime pay), or is it only hours physically worked?

Employer policies vary from company to company.  Some employers include non-worked hours such as vacation, holiday, personal or sick in the hours counted for calculating premium pay.  It is not required, but it is a common practice.  Therefore, if calculating this time manually, you need to know if you have to pay 3 hours at a premium rate or at the straight-time rate.

An online timekeeping system can be programmed to automatically calculate premium hours over and above the FLSA requirement.   In the above case, the employer does count holiday pay as part of the hours worked for calculating premium pay.  Therefore, Michael would receive 40 hours straight time and 3 hours premium (overtime) pay for that week.

Non-compliance when recording and tracking PTO

Ensuring that your “time-off” records are correct is not only a fiscally smart issue, it is also a compliance issue.  For example, in California, employers are required to allow all vacation time accrued to remain in the employee’s vacation bank without fear of loss1.  A system to track, increase and decrement vacation time is needed so that tracking is not done manually.

All paid time off (PTO) must be tracked by the employee in order to maintain accurate records, report for expense purposes, and provide proof to employees.  An online automated accrual and recording system eliminates the need for manual tracking.  Detail can also be interfaced with a reporting system so that the information can be made available on employee pay stubs.

1 California vacation rules are complex; please consult your provider to ensure you are compliant.

Payroll can be perplexing, but a joint time tracking and payroll software program allows you to expertly navigate your payroll and time and attendance, without being an expert.

* This article was jointly contributed to by Director of Payroll compliance Merle M. Capello CPP.

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