Payroll departments administer the most important agreement between a company and its workers: accurate payment by the employer for time worked to the employee. Additionally, payroll teams serve as an invaluable strategic resource, providing clarifying information to the company about its labor costs and overtime trends. As with any department, maximizing performance requires a broad understanding of key challenges that occur and the ability to ensure companies are properly equipped to handle them.
The following challenges are three of the most common that any modern payroll department may face, as well as insight to overcoming these issues.
Adapting to Constant Changes
The world is constantly evolving, but in recent years—with ever-advancing technology, ever-changing legislation and ever-shifting work habits—these shifts are now happening at a much more rapid pace.
In order to remain competitive and successful, payroll departments need to be adaptable and willing to embrace change. It’s important to remember that no one payment method is going to make every employee happy. As such, the payroll team must be flexible in how they pay employees in ways that are acceptable to them, assuming these options comply with the law and company policies.
It’s also important to get educated with regards to state and federal laws and stay up-to-date with changes in the law by taking courses that focus on different situations and challenges that may arise. Certifications like Certified Payroll Professional (CPP) and Fundamental Payroll Certification (FPC) are also helpful to keep new and changing processes or mandates top of mind. Participate in webinars and go to workshops, as even the most seasoned professionals benefit from taking advantage of educational opportunities.
Since these main functions of payroll are constant, the key to staying compliant while performing them is education.Do not be afraid of change; more often than not, welcoming these amendments can actually cut costs, save time and improve efficiency!
Ensuring Overtime Accuracy … Every Time
Navigating overtime requires a complex series of calculations, including regular rate of pay, overtime rate of pay and the amount of overtime pay due—making one of the biggest challenges payroll teams face the guarantee of accurately calculated overtime. While the rules of the Fair Labor Standards Act (FLSA) of 1938 have hardly changed since they were signed into law—overtime hours are defined as all hours worked above regular time, which are calculated separately for each week without average and only actual hours of work may be counted—the “actual hours” principle has become quite complicated in recent years. Thanks to the mobile office, more people are starting to work from home, making it more difficult to report and calculate overtime hours. Calculating regular hours worked and overtime hours at the appropriate rates are one of the biggest errors auditors look for. In order to avoid miscalculations, it is imperative that strong ethics practices are in place for both the payroll team and the employees being compensated.
Keeping Up with Tax Laws
According to the Internal Revenue Service (IRS), about 33 percent of employers make payroll mistakes that cost billions of dollars in penalties each year. Taxes have never been simple, so paying taxes in the form of payroll deductions is no exception. The possibility for error can be high, leading to disgruntled employees or worse – heavy company fines and penalties.
Today, there are several challenges to reporting and deducting taxes appropriately for payroll departments, including multi-state taxation, anti-wage theft laws and avoiding accidental over-payments; all of which may be enforced differently in each state.
States also differ in the mandates they have in place for correcting payroll deduction mistakes. While some state mandates limit the time of how far back a mistake can be made and still be allowed correction, other states say that if an incorrect amount is paid, it then belongs to the employee and nothing can be done.
It is important for payroll departments to be able to explain why deductions may be more than expected due to the law, to actively safeguard against potential fraud and identity theft attempts, and stand firm on what is considered taxable income.