Payroll may seem like a simple area to manage. Your employees work, and you pay them for that work; but there are several payroll areas that create liability for an employer, says Christina Woodward, director of HR and payroll services at ManagEase.
“Unless you have payroll expertise within your organization, you could be making costly errors,” says Woodward. “Many businesses have an accounting person or an office manager handling payroll, and the wage and hour component tends to be missed. There is also a heavy tax component that is often overlooked. Payroll is an important area for employers to pay close attention to, as it is the company’s largest overhead and liability.”
Smart Business spoke with Woodward about how to avoid costly payroll mistakes.
Why is payroll such a difficult area for employers to get right?
Oftentimes, employers do not realize the expertise required to produce an accurate payroll. There are a lot of potential pitfalls an employer may be subject to, especially in larger-dollar payrolls.
Another component creating difficulty relates to the complexity of current payroll software, making it more difficult for users.
Payroll can be very costly, especially as errors cross over quarters, or years, requiring amendments with different agencies.
How can misclassifying employees as exempt cause unpaid overtime liability?
There’s a high risk, cost-wise, when misclassifying employees as exempt when they should be nonexempt, which can create overtime liability and meal/lunch break liability.
Employees may be exempt from overtime eligibility if they meet certain criteria, for example, if they are a member of executive management or hold a professional degree. Deciding if an employee meets the requirements to be exempt can be tricky and requires wage and hour expertise. An employer’s best option is to involve human resources to properly classify employees in order to avoid undue liability.
Misclassifying employees can be costly for a company, involving fines, back pay and even class action suits.
