India has many labour laws that businesses operating in India need to follow. Additionally, the labour laws are reviewed frequently, and it can become challenging to keep track of these updates. Companies that have a large workforce need to comply with several payroll laws and require efficient payroll systems to keep track of employee payments.

An efficient HRMS & payroll processing system will ensure that your employees receive accurate and timely payments. However, if a company doesn’t have the right tools, resources and systems, the chances of errors cropping up in payroll are high.

What Are the Most Common Payroll Processing Mistakes?

Payroll is a complex process and the complexity of the process gives rise to many payroll issues commonly experienced in various organizations. Some of the most crucial issues that your payroll department may face include: –

1. Miscalculating Payroll

Payroll processing involves keeping track of overtime, leaves, commissions, deduction, PTO, bonuses, etc. It is a complex process, and the complexity multiplies with an increase in the workforce located at multiple global locations.

On average, employees should get 1.5 times their regular wages for overtime wages. However, with different state policies, the wages differ, and organizations need to remain compliant with government laws. An incorrect payroll can lead to frustration amongst employees and damage the company’s reputation.

Hence, it is important to reduce and minimize payroll errors.

Inefficient time tracking also contributes to miscalculations and increases payroll processing errors. Companies must have an efficient HRMS & payroll service provider to avoid these common payroll errors. To avoid common payroll errors, companies should invest in an efficient HRMS & payroll system.

2. Misclassifying Employees in Payroll

A company can employ two types of employees, full-time employees and independent contractors or freelancers. Sometimes, organizations can make the error of misclassifying employees as independent contractors; this is one of the most common payroll errors. This costly payroll error denies an employee various benefits and wages that are due to them under their correct employment classification. This error also has an impact on government taxation, meaning that the taxpayer is taxed incorrectly. If such errors are left unchecked, they can lead to heavy penalties and trust issues between employers and employees.

3. Missing Deadlines – payroll and tax filing

Employees expect timely and accurate payments from their employers. When a payroll deadline is missed, employee frustration increases and the organization’s reputation gets hampered. On the other hand, if tax payment deadlines are missed, organizations can face late filing fees and other regulatory penalties. Missing deadlines not only tarnishes an organization’s reputation, but it also adds to financial stress for employees. Hence, taking precautionary measures regarding payroll and tax filings is highly advisable.

4. Unclear Payroll Records

Failure to maintain clear payroll records can be catastrophic for your organization. Your payroll department must track, maintain, and manage payroll processes efficiently. Therefore, maintaining clear payroll records is inevitable to help your company comply with payroll laws, thus benefiting both the employee and employer of the organization.
Some of the most common record-keeping errors made by the payroll department are: –

  • Incomplete employee information.
  • Employee information is not updated when required.
  • Outsourcing payroll and providing incorrect reports.
  • Limited storage capacity for data storing and processing.

Failure to regularly maintain records can be detrimental to your organization. These mistakes can result in high chances of your organization getting penalized by the government. Hence, creating an efficient payroll system to maintain clear records should be top priority for your organization.

5. Absence of a Strong Data Backup System

Could you imagine what would happen if your system crashed and lost all your data? Or what if your HR manager decides to quit the organization on a short notice? The consequences of these situations can be disastrous. Organizations need to have a self-sufficient payroll system ready to manage different crises. In addition, adequate measures should be taken to have a trusted backup system for your payroll data.

Ways to Make Your Payroll Process More Efficient In India

An effective payroll management system is not just focused on reducing payroll errors, it also ensures that payroll is hassle-free for your organization. This enables the employees to focus on core responsibilities such as revenue generation, rather than getting stuck with payroll management.

1. Invest in the right payroll processing tools

The best way to avoid payroll errors is to invest in a good payroll system. An efficient HRMS system will update and manage important employee information such as wages, overtime, leaves, privileges, working hours, account numbers and withholdings.

Integrating your payroll software with your HR system is important as it automates the most time-consuming tasks for you. Payroll software eases the process of tax filing, distributing payslips, running reports, etc. Hence, choosing the right tools can reduce half of your payroll mistakes.

2. Use Leave Management Services

The leave management tasks are to manage employee time-off, holidays, leaves, parental leaves, etc. When these tasks are handed over to an outsourcing company that uses an efficient leave management system, benefits such as improved employee satisfaction and retention, ensured statutory compliance, reduced management errors and increased organization productivity are ones not to miss out on.

3. Automate and Integrate Payroll Processes

Automatic and integrated payroll processes not only reduce manual intervention and payroll errors. they also help you align HRMS with scheduling, time tracking, employee benefits, etc.

Automating your payroll process also helps you manage the workforce and improve consistency. A single system can help you reduce reporting and payment errors. And taking it a step further, using a consolidated report helps you identify discrepancies on time and make alterations if required in real-time.

4. Stay Well-Informed with updated policies and laws

The Lack of information or lack of current information is one of the most common reasons for payroll errors. Your payroll department should make sure that they are updating policies and laws regularly, especially when your company has a global presence.

5. Run Reports Prior to payroll processing

With the help of good payroll software, you can run reports before processing payroll to identify loopholes and prevent mistakes. Running the following reports before payroll can be beneficial to your organization: –

Payroll register: This report gives you a holistic view of payroll-related information.

Deductions summary: This report has all the deductions of the employees in a particular month.

Cash requirement: This report highlights the amount of money required to pay wages, taxes, deductions, etc.

6. Keep a Checklist

Keeping a checklist is a tried and tested method to complete tasks effectively. HR professionals are always juggling multiple tasks even with the help of software systems. A checklist can help you go through each step-in detail, review it and make necessary changes. This ensures that accuracy is maintained and there are minimum chances of human error.

What is the best technique to correct a payroll processing mistake In India?

If you have processed payroll incorrectly, the best thing to do is to act on it as soon as possible. For minor payroll errors, the following steps can help you rectify or reduce the impact of payroll errors: –

  • Run a manual payroll only for the affected employees.
  • Cancel the payroll, update it and reprocess it.
  • Making adjustments in the next payroll is a wise step to get things back on track.

In summary, increasing your awareness of different payroll errors can help you detect them at an earlier stage. Every organization aims for ‘Smooth Functioning,’ which can be achieved when you have solid systems and processes. Investing in a payroll system can brighten a company’s future and lift the burden off an HR professional. After taking precautionary measures, if a payroll mistake does occur, you must address them head-on and move forward. Successful payroll management contributes to a healthy work environment and much-improved employee satisfaction.

TopSource Worldwide is one of the most sought-after payroll outsourcing services providers in India. It is a global payroll management company dedicated to making payroll much simpler for your organization. They have provided payroll and professional employee organization (PEO) services to several companies spread across 100 countries worldwide. Needless to say, the organization runs on an army of expert professionals. The firm is dedicated to solving all your payroll-related issues and helping you build a robust payroll management system.

To find out more about how to streamline payroll management, and get the best payroll outsourcing services in India, contact TopSource Worldwide today!

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Published On: June 8th, 2022Last Updated: June 16th, 2022

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About the Author: Sachin Disa

Sachin heads the India Payroll business unit and is responsible for global sales into India, India domestic sales and delivery, and local finance support in India. Sachin has over 17 years of experience with the company, his previous roles include head of UK payroll operations, head of accounting support services, head of sales in India and VP of finance.