So You Made a Payroll Error

Payroll errors, while not common, can happen to even the best H.R. departments. Payroll is an extremely sensitive topic for many employees (especially those working on an hourly basis), so it is important to handle these errors with respect for all involved and not only admit the error, but correct it as soon as possible to avoid further embarrassment or distrust. This is a scenario that calls for the employer to be humble, admit that mistakes happen, and to make amends per state law.

First of all, what causes payroll errors? Many small businesses use programs such as Quickbooks or Intuit, which should calculate everything properly so you don’t have to do any of the work. However, evidence suggests that is not always the case. As with any online system, both programs experience periods of time where scheduled site updates are implemented, rendering the service useless for hours at a time. Additionally, software glitches or incorrect settings can lead to surprising payroll results. Among other popular causes of payroll mistakes are:

  • Hourly employees changing schedules
  • Human error
  • Software glitches
  • Coding errors
  • PTO requests

There are two main scenarios that usually play out when payroll has been doled out incorrectly. Once the error is discovered, obviously the original problem with the software must be identified and fixed. Once that is complete, it is time to address the issue with the employee(s) themselves.

If an employee was overpaid:
Don’t assume the employee noticed the overpayment and deliberately kept the money, but also don’t rely on employees to bring these payroll errors to your attention (especially if the error is in their favor). Sit the employee down immediately and explain the situation with full disclosure. Admit to the error and explain that the money still technically belongs to the company and must be given back. Do not dock the excess amount from the employee’s next paycheck, as this is illegal in many states. If the employee did not notice the overpayment, he or she is likely to be confused to see a smaller sum during the next pay period.

If an employee was underpaid:
Time is of the essence if an employee has not received their full paycheck. State laws mandate that employees must be paid in full as soon as possible – in this case, as soon as the error is discovered. Do not wait until the next pay period to dispense missing funds. Do not offer to reimburse employees from your own personal funds (even in a small business setting). Payroll records and tax reporting needs to be accurate and this will guarantee incorrect numbers at the end of the year. There is no time frame within which the money “expires:” if an employee has been underpaid (even several months prior), the amount is due immediately.

Also consider whether vacation time or 401K payments were impacted by the underpayment. Occasionally computers will incorrectly calculate pay surrounding scheduled PTO. If there is only a 2-week delay in payment, usually 401K accounts are fine. If, however, the employee’s underpayment was discovered many months after the fact, state law usually mandates that employers are responsible for interest payments in addition to the withheld amount.

Payroll errors cause complications for both H.R. departments and employees, but the important thing is that they are caught and corrected as soon as possible. The best way to prevent payroll management errors is to outsource payroll services to a company such as Padgett Payroll Services®. Professional payroll processors keep up with the latest state laws and tax regulations to make your records as accurate as possible. With in-house payroll errors, knowledge of state laws regarding employee payroll is critical, as underpaid employees may be permitted to take legal action against the company. With payroll management in the hands of a professional payroll service, service is seamless and requires no additional legal research on the part of the company. Make the easy choice and call today to learn more!