4 Common Payroll Errors (And How to Stay Compliant)

Discover the Most Common Payroll Errors and Learn How to Stay Compliant


  • Payroll errors can drain your company’s finances, steal precious time, and even damage your reputation with employees.
  • Common payroll errors include misclassifying employees, poor record-keeping, and missing tax deadlines.
  • At RMI, we specialize in providing small businesses with reliable, accurate, and fully compliant payroll services. Let us take the weight off your shoulders and ensure your employees receive their payments on time, every time. Contact us to get started!

Payroll errors can be a nightmare for any business. Even a minor mistake on a paycheck can snowball into major problems – disgruntled employees, hefty penalties, legal disputes, and damage to your business’s reputation.

From misclassifying employees to missing deadlines, this article dives into the most common compliance mistakes businesses make and gives you actionable tips to keep your company running smoothly.

Poor Record-Keeping is a Common Payroll Error that Might Lead to Compliance Issues

4 Common Payroll Errors

Did you know a whopping 40% of small businesses face IRS fines annually for payroll errors? Let’s explore the 4 most common payroll errors businesses make, so you can avoid costly mistakes and keep your employees happy.

Misclassifying Employees

One major payroll pitfall lies in employee misclassification. This happens when companies categorize workers as independent contractors, even though they should be classified as traditional employees. This distinction is crucial because employees are entitled to overtime pay, minimum wage, and various benefits, which don’t apply to contractors.

Misclassifying employees can lead to serious consequences – including hefty fines for wage and hour violations.

To avoid this, employers need to thoroughly understand the legal distinctions between exempt and non-exempt employees. Depending on your business’s complexity, you might need to consult an HR professional to guarantee proper classification and keep your payroll compliant.

Recordkeeping Issues

Keeping meticulous records is vital for staying compliant with payroll regulations. This includes documents like timesheets, paystubs, tax forms, and employee classifications.

However, due to the sheer volume of paperwork employers deal with, it’s easy to lose track of documents. Whether you’re missing reporting on employee vacation time, failing to maintain current tax information, or prematurely throwing out paperwork, you can quickly find yourself in trouble.

Effective payroll requires being organized and a well-organized recordkeeping system in place to make sure that you’re always on top of things and ready for audits.

Failing to Document Overtime Hours

When employees work more than 40 hours per week, the Fair Labor Standards Act mandates that you pay them no less than “time and a half” their regular pay rate for additional hours. Failing to do so can get you in some hot water, as this is one of the primary reasons that employees sue their employers.

The problem is that some companies are less than meticulous about documenting overtime hours — and if you slack in this area, it may come back to haunt you. Luckily, the  U.S. Department of Labor website provides clear guidance on handling overtime pay and access to further resources.

Not Filing Forms on Time

Payroll isn’t just about paying employees – it also involves timely tax filings and other forms. These deadlines are strict and missing them can lead to harsh penalties. 

To avoid this tax headache, stay organized! Mark important deadlines on a calendar and be aware of when each form is due. Luckily, the IRS website offers a helping hand. Their Employment Tax Due Date guide provides a clear rundown of all reporting deadlines, saving you time and ensuring you never miss a crucial date.

Partner with an HR Outsourcing Company Specialized in Payroll to Avoid Costly Mistakes

How to Stay Compliant

Knowing which payroll errors to look out for puts you in a better position to prevent complications. In turn, you can reduce your liability and avoid any unwanted attention from the IRS.

Now, let’s delve into the key strategies to ensure your payroll processing is accurate, efficient, and most importantly, compliant:

  • Invest in payroll software: Ditch the spreadsheets and embrace user-friendly payroll software. Look for software that stays up to date with regulations and integrates seamlessly with your existing timekeeping system.
  • Automate repetitive processes: Let technology do the heavy lifting! Automate tasks like payroll calculations, direct deposits, and tax filings. This frees up your team’s time for more strategic HR initiatives and minimizes the risk of human error.
  • Conduct regular audits and reviews: Don’t wait for a problem to arise. Be proactive and schedule regular internal or external audits of your payroll processes. That way, you can catch and address discrepancies before they turn into major issues.
  • Stay updated on regulations: Payroll regulations are constantly evolving. Subscribe to reliable resources from government agencies or reliable HR organizations to stay informed about any changes that might impact your business.
  • Partner with an HR outsourcing company: Consider partnering with an HR outsourcing company specializing in payroll. Their team of experts can handle everything from tax filings to employee benefits administration, giving you peace of mind and enabling your internal team to focus on core business activities.

Protect Your Business from Costly Compliance Errors With RMI

Processing payroll accurately requires staying on top of complex regulations, all while maintaining meticulous attention to detail. But let’s face it: Running a business involves a million moving parts. It’s easy to see how staying on top of payroll compliance can sometimes fall by the wayside.

At RMI, we provide payroll services for small businesses that need to simplify their processes and gain back precious time to focus on growth-led initiatives rather than spending hours on admin work. Looking to take payroll off your desk? Our team of payroll and tax experts can help!

Ensure payroll compliance and avoid penalties – Contact us today to get started!

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