Salaries are the biggest expense in any business. For any organisations, their employees are an investment that comes at the price of their salaries. If a payroll error happens, the expenses can add up pretty quickly and become larger than the salaries themselves. This is the reason many companies prefer payroll outsourcing. Below are the costs associated with payroll errors:
Man Hours to Correct Errors
Over the course of the payroll process, all errors must be corrected as soon as possible. Aside from being good to your employees, you must have financial records that are accurate to retain favor with the tax department. These sound reasonable until you account for workers who stop their work and focus on making corrections to errors. This amounts to a significant loss of valuable labour in different departments. In some cases, identifying and fixing errors can be difficult which requires more man-hours for correction.
Retroactive Taxes for Misclassified Employees
Employers are responsible for paying their employees overtime, paying a part of their taxes, pay benefits, possibly pay unemployment, or carry workers’ compensation insurance. A company’s independent contractor does not get these benefits.
When an organisation classifieds a worker as an independent contractor and it’s determined that the employee has been misclassified, it can be costly for the company. The organisation may need to come up with retroactive overtime pay for the worker and may need to pay back taxes.
Cost of Compliance Failure
Maintaining compliance with laws that govern businesses can be hard on the best of days. However, non-compliance penalties can add up to substantial costs. Compliance laws concentrate on payroll processes which compliance one of the most significant areas organisations must have precautions in. Making incorrect or delayed payments as a result of unexpected payroll errors or incorrect employee information submission can lead to fines and other issues.
Preventing Payroll Errors
Providers of payroll outsourcing services and software can help companies prevent payroll errors. Calculating payroll manually leaves an organisation open to errors and makes it important for them to regularly research current laws. Third-party payroll companies and software put a company in the hands of experts and make managing payroll easy. Decentralised payroll service works well for big companies that span geographies. Payroll outsourcing services providers have local knowledge and global expertise to simplify payroll management while adding value in terms of return from process efficiencies. Also, it is important to have transparent communication of payroll policies and procedures with employees to avoid unpleasant surprises for all parties involved.