Common Payroll Issues

Payroll is often seen as a necessary evil and simply assume anyone can perform the task.  As a result, many business people are completely unaware of the consequences that can accompany poor decisions and oversight.  We have compiled a list from payroll experts as well as tips for avoiding them.

Classification of Employees as Independent Contractors

Probably the most common payroll and human resources issue, the classification of employee or contractor affects how compensation is reported, eligibility for benefits and whether the worker is subject to income tax and employment tax withholding.  Misclassification can and does result in costly fines and significant rework for administrative employees and payroll service providers.

If you have improperly classified a worker, “the Voluntary Classification Settlement Program (VCSP) allows eligible employers to voluntarily reclassify workers as employees on a prospective basis and get into compliance by paying 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year.” (Accounting Today)

Here’s the takeaway:

Make sure you understand the distinction between employee and contractor.  If not, consult your human resources department or consultant for assistance and avoid lost time and money.

Tracking Time Off

Keeping track of employees’ annual leave and sick days can be extremely difficult, especially if you are doing so manually. If not tracked in real time and accurately, businesses run the risk of lost productivity, poor planning and disputes.  Fortunately, there are solutions in the form of payroll service companies and payroll software.  However, no tracking can rescue a poorly written and executed policy.

Here’s the takeaway:

Be very clear and specific on the terms of paid and unpaid time off in your employment policies.  Once that is defined and understood, utilize your payroll experts or software to track and maintain accurate records.

Overtime

The Fair Labor Standards Act (FLSA), requires companies to pay employees premium wages of at least one and one-half their regular rate for any hours worked over 40 in a single workweek.  This places a burden on supervisors and payroll personnel to track and compensate accordingly while still meeting financial objectives and remaining compliant with FLSA law.

The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime hours are worked on such days. State laws may vary. Premium pay for working weekends or nights is a matter of agreement between the employer and the employee (or the employee’s representative). The FLSA does not require premium pay including double-time for weekend or night work. (CPA.com)

Here is the takeaway:

Create and enforce a time tracking policy that requires accuracy and timeliness from employees and their supervisors.  It is also important to know the difference between exempt and non-exempt employees.  See the next item.

Exempt and Non-Exempt Employees

Some groups of employees may be exempt from certain minimum wage and overtime requirement provisions. For example, some executive, administrative, professional, certain computer professionals, and outside sales may be exempt. Exempt employees must generally be paid a minimum amount via salary and/or fee.   It is important to note that the payment parameters may be changing for exempt employees.

The FLSA, enforced by the U.S. Department of Labor—Wage and Hour Division, requires employers to pay nonexempt employees a minimum hourly wage rate and overtime pay for hours worked in excess of 40 in a single workweek.  (CPA.com)

Here’s the takeaway:

First, know what classes of employees are eligible to be exempt by law.  Then, be very aware of the potential changes in salary parameters for exempt employees.  Failure to do so could result in expensive and time-consuming adjustments in pay and classification.

Health Care Changes

There are enormous new tracking and reporting requirements for businesses who have 50 or more employees beginning in 2015.  These are not the only duties generally borne or outsourced by payroll professionals.  In addition, they may be required to know who is eligible and how.  For example, employees of these companies who are eligible for health care benefits must be tracked by hours, wages and eligibility dates along with a measurement of affordability.  If it wasn’t enough to keep up with in the best case scenario, the penalities for not being compliant and accurate are significant.

Here’s the takeaway:

Be very sure you understand the requirements for tracking and reporting.  Do not wait.  Companies who assist with these matters will be hard-pressed to help in a timely manner if tracking has been deficient for the last 9+ months.   It is highly recommended that you at least speak with, if not work with, an expert in Affordable Care Act tracking and reporting requirements.

Resources

Accounting Today

ExakTime

CPA.com

Talent 2

Eligibility Tracking Calculators