Payroll processing is one of the most critical yet challenging areas for small businesses. Oftentimes, the process is time-consuming and filled with manual steps, which drains HR teams and, in turn, company resources. Therefore, it’s important for small businesses to be proactive and take steps to avoid experiencing a payroll delay.
This guide is designed to help you understand how to reduce payroll processing time with practical and effective solutions. With these tips, you’ll avoid unhappy employees, potential legal affairs, and operational disruptions caused by payroll delays. Let’s dive into the realm of payroll delays and understand ways to avoid them. 🚀
TABLE OF CONTENTS
What is a payroll issue?
A payroll issue is one that occurs during the payroll process. This could be anything from miscalculations, reporting taxes incorrectly, and failing to meet compliance regulations. Typically, payroll issues result in payroll delays meaning you as an employer will be distributing paychecks late to your employees. We will take a closer look at this specific payroll issue later in this guide.
What are some common payroll issues?
Payroll issues can vary as there are multiple factors that could cause problems with payroll. Some of the most common issues are:
- Misclassifying employees: Classifying an employee as an independent contractor, or vice versa, can lead to incorrect pay, ultimately requiring wage adjustments. Moreover, if this misclassification is not corrected, it could result in fines for your business due to non-compliance with payroll regulations.
- Not tracking employee hours and overtime: It’s important to keep track of employee hours and any overtime they accrued in order to properly calculate their wages. Properly distributing employees’ pay would maintain payroll compliance for your business.
- Incomplete records: Processing payroll with incomplete records can lead to significant issues. This often occurs when businesses rely on manual spreadsheets, which are prone to data entry errors. Managing payroll manually can overcomplicate the process and significantly increase payroll processing time.
- Non-compliance: Following federal, state, and local employment regulations such as Fair Labor Standards Act of 1938 (FLSA) can be complicated. Especially as they change and update over the years, however, it is mandatory to comply to these regulations as an employer. Particularly, staying up to date with minimum wage policies in order to avoid legal consequences and pay your employees their fair wages.
- Incorrect W-2s: You must provide your employees W-2s annually so they can file their personal taxes. This document includes vital information including gross and taxable income, as well as their payroll withholdings such as benefits and 401k. Due to the importance of this document, the tiniest error could cause a ripple effect and affect their personal tax filings.
- Missing deadlines: Missing tax deadlines can have a significant negative impact on your business. It is crucial to take immediate action if a deadline is missed. Ensure that you and your payroll team have outlined all key dates and understand which documents must be filed by their corresponding deadlines.
What is a payroll delay?
A payroll delay refers to an employer failing to properly distribute wages to their employees on the mutually agreed upon scheduled payday. In other words, employees receive their wages later than expected. This could be due to various reasons, including miscalculations from clock-ins and clock-outs or, in some cases, a lack of staff for small businesses.
Running a business comes with its fair amount of challenges, so as an employer you may be thinking to yourself, can payroll be late? Yes, it can be. Although, it is not something that should happen often or else your company will be at risk to face legal consequences.
Common reasons for payroll delays
Ensure that your company doesn’t experience payroll delays frequently to maintain compliance and keep your employees happy. However, the likelihood of having a payroll delay is high so it is best to be prepared and proactive.
- Data mistakes: Any mistake when it comes to entering employee hours to incorrect tax information can lead to processing delays and a longer payroll processing time. Fixing mistakes requires additional time and effort, ultimately causing a delay in payroll.
- Adjustments to payroll: Any changes made including overtime or reimbursements processes near the payroll deadline could cause payroll delays. These last-minute changes may need to be approved by managers or other HR members before it could be properly processed in payroll.
- Missing information: Essential information, such as employees’ personal details or bank account numbers required to process payroll, can cause delays if incomplete or incorrect. Double-checking all vital information and fixing any payroll errors ensures a smooth payroll process.
- Compliance issues: Staying compliant with federal, state, and local tax laws can be complex and time-consuming. Especially when regulations change, payroll teams will have to work to correct information to ensure compliance.
- Technical issues: Power outages or glitches in your platform can delay payroll processing time resulting in a payroll delay. In addition, any software or technology you use to prep your payroll could experience a malfunction and affect payroll.
- Short-staffed: An understaffed payroll team is likely to be overwhelmed during busy periods which can cause delays in payroll processing time. Furthermore, without adequate staff payroll issues could persistent beyond busy periods resulting in larger consequences such as unhappy employees and potential legal risk for your business.
- Federal holidays: Banks and financial institutions are closed on federal holidays. So if your payroll deadline coincides with a holiday there will most likely be a payroll delay. Be aware and have proper protocols in place to minimize any delays during federal holidays.
Tips to avoid payroll issues
1. Automate payroll processes
According to a SelectSoftware Review study, a surprising amount of organizations still use spreadsheets (51%) and manually run payroll (19%). An automated payroll system decreases the likelihood of errors. And in turn, decrease the risk of delayed payrolls. Additionally, a payroll software improves companies efficiency and runs payroll automatically – saving your company time and effort.
2. Perform audits
Audits are a great way to ensure accuracy in employee data and of payroll records. As well as reducing payroll delays and potentially facing financial penalties due to not adhering to compliant regulations. In addition, audits can identify areas of improvement including, payroll miscalculations, inefficient payroll process, and inaccurate tax withholdings.
3. Establish guidelines
Ensuring everyone in your team is aware of the necessary steps will help maintain a high level of quality throughout your payroll process. Outlining all payroll activities such as exceptions or the approval and denial process will be key for your team and new hires. Additionally, the law requires companies to hold on to certain documents. For instance, FLSA mandates companies to maintain payroll records for up to three years. Overall, these guidelines will act as a preventative measure to mitigate payroll issues and payroll delays.
4. Provide an option for employee self-service
A great way to avoid payroll errors is to provide your employees with an employee self-service platform where they can fill out their personal information, bank account for direct deposit, and worked hours. An additional bonus, is self-service platforms eliminate the need for manual payroll. Ultimately, saving your team (and business) time, resources, and effort. By having each employee fill in their information, the payroll process becomes more straightforward, resulting in little to no payroll delays.
5. Organize a payroll calendar
Payroll calendars provide an holistic overview of your payroll process. This way you’ll know exactly what to expect and when key tax deadlines are coming up. It’s vital to have a clear process in place for paydays, issuing payroll documents like W-2s, and meeting tax regulations in order to avoid late-filing penalties. To accompany your payroll calendar, you can also develop a checklist so everyone on your team knows exactly what’s been done and what needs to be carried out.
How to deal with payroll issues and payroll delays
Luckily, there are a variety of available solutions for your payroll issues. As technology advances, more and more companies are turning to automated platforms to ease their workload. For instance, payroll software is a great investment for small businesses, especially those with limited resources. Payroll software can process your employee payroll and prevent issues like incorrect tax withholdings from occurring. A payroll software is the perfect solution to ensure accuracy in employee wages and hours, calculate wages, and confirm essential tax information meets all labor laws and regulations at all levels (federal, state, and local). It’s important to understand what your company needs are and what kind of payroll software would be best for you.
For example, Factorial is the perfect solution for small businesses looking to automate their payroll process. It’s simple, yet robust with a variety of features to ensure accurate and efficient payroll management. Some benefits using Factorial to run payroll include:
All necessary information to process payroll is organized and centralized within your platform. This includes work hours, benefits, deductions, 401k, and banking details. Keeping this data organized prevents delays and errors during the process.
- Automated payroll process, reporting, and calculations
In addition, you will automate payroll to pay employees monthly with minimal data entry required. Ensuring a smooth payroll process and allowing your team to focus on other tasks. An added value to reporting and predictive analytic features is the ability to make informed decisions.
- Integration with existing platforms
Platforms such as employee time tracking and applicant tracking systems will seamlessly integrate with your Factorial in order to keep essential information centralized.
- Securely store payslips and employee data
All employee payslips will be digitalized making it easy to store and reference for future needs. This ensure secure, efficient, and compliant recordkeeping.
