How to Run a Smooth and Compliant Payroll Process

An organization’s payroll management is a critical operational function, yet it is often hindered by inefficiencies and disorganized processes. Some of the more common challenges in payroll can do the most damage, including noncompliance, mismanaged employee information, inaccurate timekeeping and inadequate staffing.

Proactive organizations can avoid these pitfalls and ensure a smooth payroll process with an understanding of these challenges and the right resources. Here’s how to get started:

Compliance: The Foremost Challenge

We’d be remiss not to start with compliance, since it typically tops the list of common payroll pitfalls. For payroll management, compliance with tax regulations, audits, changing laws and Fair Labor Standards Act (FLSA) overtime rules are a top priority. Navigating these regulations requires constant vigilance and up-to-date knowledge. To avoid costly penalties and ensure timely and accurate tax filings, businesses must stay informed about federal, state and local tax laws.

Pitfall #1: Mismanaging Employee Information

The accuracy of payroll is determined by the proper management of employee information. Demographic data, particularly employees’ worked-in and lived-in addresses, can significantly impact tax withholding. Employees often delay updating their addresses, which can affect taxability and the delivery of tax forms. Additionally, worked-in locations frequently change, and delays in system updates can require tax amendments or the reissuance of tax forms.

To mitigate these issues with employee data, it is essential to educate employees and their managers about the necessity of timely updates. Regular reminders, especially at the start of the fourth quarter, can help prevent the need for W-2c issuance.

Pitfall #2: Inaccurate Timekeeping

Accurate timekeeping is a key driver of compliance and payroll accuracy. Many businesses fail to update their timekeeping rules after system implementation, and some still rely on Excel spreadsheets for tracking time. Overtime rules and premium pay rates often vary by work location. While the general overtime rule in the U.S. is well-known, states like California and Alaska and some cities, such as Denver, have additional requirements. Oregon, for instance, mandates that schedules be provided two weeks in advance under its fair work week law.

Assumptions that all salaried employees are exempt from overtime can lead to compliance issues. It is important to recognize that even within global companies, a significant portion of the workforce is subject to overtime and premium payments. To ensure accurate timekeeping, implement an automated time tracking system, conduct regular audits, train your employees and perform follow-up audits.

Pitfall #3: Overlooking Staffing

Effective payroll management also hinges on having the right staff with the necessary skills. Speed and accuracy in processing payroll queries are essential, but equally important are the abilities to identify process improvements, automate tasks and ensure comprehensive audits. Providing continuing education opportunities helps staff stay current with changes in payroll regulations, enhancing compliance and overall efficiency.

A supportive work environment where employees feel comfortable reporting mistakes without fear of retribution helps support this. Encouraging a culture of transparency can reveal underlying issues, and it allows for the implementation of corrective measures and establishment of controls to prevent future errors.

A Smooth, Compliant Payroll Department

Ensuring efficient and compliant payroll management requires a multi-faceted approach. While compliance with regulations is a priority, addressing other aspects, such as managing employee information, maintaining accurate timekeeping and investing in skilled staff, are equally important. By adopting a proactive and comprehensive strategy, businesses can improve payroll, minimize errors and enhance overall efficiency.

As your payroll department works toward this, Sikich can help answer your questions. Our team offers evaluations of payroll processes and staffing in addition to a review of your current systems and needs. Contact us today to learn more about how we can help you avoid common payroll pitfalls.