Double Impact: How Payroll Errors Cost You Twice
Money. That’s what payroll is all about, and that fact alone makes it easy to understand why business owners and payroll administrators would want to avoid payroll errors. But while the costs of payroll errors are easy for organizations to understand from a net revenue perspective, payroll mistakes have a secondary cost that can be all too easy to overlook: the impact they have on your people.
The Financial Costs of Payroll Errors
Payroll errors of any kind cost an organization money, whether directly or indirectly. Often, the cost is at least two-fold, because the mistake itself has a financial penalty independent of the time and money required to correct it. Common payroll errors and their associated costs include:
- Mis-logged hours that have to be added or corrected after the fact, costing time and disrupting budget accuracy
- Misplaced time cards and timesheets lost in the paper shuffle (resulting in even more of the above)
- Delayed approvals from managers and delayed payroll due to incomplete paperwork or missed communications
- Miscalculations in overtime, which can lead to compliance issues or, at worst, legal ramifications
- Late or unpaid payroll taxes that result in penalties and extra hours worked
- “Buddy punching” and other situations when employees enter hours incorrectly to receive payment for being absent
- Employee misclassification, when an employee is being paid more or less than their correct wages due to an error in data entry or communication
How Payroll Errors Hurt Your People
From a bigger-picture perspective, the more dramatic impact of payroll errors is one that is not as easily calculated.
Statistically speaking, the average American household with debt owes $132,529 to various institutions, and 23 percent have no emergency savings fund whatsoever (Caution: auto-playing video at the second link). Even more eye-opening is the fact that 78 percent of Americans reported living paycheck-to-paycheck in 2017. That means a missed or miscalculated paycheck is more than just a headache for the employer; it can often be a financial crisis for the affected employee. A bounced check or missed mortgage payment can start a cycle of penalties from which many people can’t recover—not to mention a single missed payment appearing on your credit report can affect your ability to buy a car, buy a house, or rent an apartment. Missed payments and money issues can even affect an employee’s ability to make it to work on time, or at all.
When you consider the significance payday has for many people, it starts to make sense that the payroll experience is one of the most critical touch points between an employer and an employee. When people’s lives literally depend on that experience going smoothly, a single mistake can erode the trust employees have in their employer. In fact, just two payroll errors can have many people looking for a new job. And when pay issues get out “in the wild” and show up in reviews of an organization, the impact on employer brand can be devastating.
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How to Prevent Payroll Errors
So, protecting your payroll process to ensure it works flawlessly, on time, every time, is critical to any business from both a revenue perspective and a cultural, employee-experience perspective. And the best way to ensure accuracy and eliminate bottlenecks is to close the gaps in the process where human error can creep in. Automation and integration are the payroll administrator’s best friends; by using digital time tracking and compatible or integrated payroll software, HR and payroll can help ensure nothing gets lost, from the daily hours being tracked to the eventual approval and handoff that initiates the payroll process. A cloud-based payroll service can stay up to date with state-by-state overtime regulations, calculate and submit tax payments and info, and keep records backed up for review.
By automating the transactional part of payroll, organizations can protect their revenue stream and the trust they’ve earned with their employees. And HR gains valuable time that they can then spend on improving the employee experience: for example, creating a money management program to help employees get beyond the debt cycle and start saving for retirement.
Moving from the traditional time tracking and payroll methods you’re used to may seem like a massive hurdle for you and your employees to overcome, but when all it takes is one or two payroll errors to do serious harm to your people and your business, it’s clearly worth the effort.
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Rob de Luca has written extensively on culture and best practices in the HR field, combining original research and input from HR experts with his own perspective as a manager, creative executive, and veteran of industries ranging from hospitality to consumer electronics. He believes culture is critical to organizational success and that HR holds the keys to defining the employee experience.
