Payroll is a necessary process in your business. However, it can suck up a lot of time if you are constantly correcting payroll mistakes!
Incorrect timesheets, tax deductions, new employees, public holidays- these can all add up to little mistakes that take up a lot of your time.
In this article we share 6 common payroll mistakes you might be making (and how to avoid them!).
Payroll needs to be processed correctly every single time.
Not only is this a duty of care to your employees, it is your legal responsibility as a business.
Firstly, correcting payroll mistakes before payslips go out will lead to better employee satisfaction.
Hard working employees deserve to be fairly compensated, and processing payroll efficiently helps you do this. Ensuring you have a system for timesheets and tax code calculations will make this a much easier job for you.
Secondly, you are legally required to process payroll correctly.
Although employees should keep their timesheets up to date, payroll errors could still lead to penalties in your business. As the employer, you are responsible for your employees’ individual tax obligations. Ideally a payroll process should create payslips that shows automatically calculated leave, public holidays and tax deductions according to correct tax code brackets as well as their hourly wage.
To help you keep employees and the IRD happy, we’ve got you covered with how to avoid some common payroll mistakes below.
Avoiding payroll mistakes will maintain employee satisfaction, avoid penalties and maximize profits in your payroll processing.
Here are a few common payroll errors that could be wasting time and money.
While paying someone their hourly wage or salary might be simple enough, there are a few things that might trip you up.
Firstly, employees might not keep their timesheet up to date. You should clearly state when you expect timesheets to be signed and completed, and whether any missed hours are added to the next pay cycle.
As well as timesheet underpayments, you might be underpaying staff for things like holiday pay. In recent years, complications with the Holiday Act 2003 has resulted in many large businesses (e.g. MBIE, McDonald’s, Bunnings) underpaying annual leave and having to back-pay millions of dollars.
This is because employee annual leave can be calculated in two ways:
Annual leave needs to be paid at whatever the highest rate is out of these two options.
If you have employees that either 1) work varied hours or 2) get extra bonuses or income, you should double check their holiday pay rates. Read more about how to avoid this payroll mistake here.
Overpayment can take just as much time and money away from your business as underpayment.
Underpayment means you might not be meeting government obligations. In comparison, overpayment means that you might be bleeding money.
In some cases you may not be able to recover it from employees. It could also mean reduced employee satisfaction if you realize that you have overpaid someone and then have to pay them less in their next paycheck.
This is why it is important to set up an efficient payroll system and do regular audits of payslips versus employment contracts. Double checking that you are not overpaying staff is one of the easiest ways to maximize profits in your payroll processing.
New Zealand requires businesses to pay employees minimum wage. This is adjusted by legislation over time for things like cost of living, and it is a legal requirement of running a business.
The current New Zealand minimum wage as of April 2022 is $21.20 per hour for an adult employee. Avoiding this mistake is as simple as adjusting all your employee contracts and updating your payroll services.
New Zealand based payroll services like Smartly can help ensure that you are up to date with all changes.
Payday filing is another requirement for an employer and is a common payroll mistake. Once you have processed and paid your employees, you will need to send everything to the IRD to confirm wages and tax deductions.
IRD requires businesses to submit their payroll information within two days of paying your employees. This keeps you up to date with employee tax obligations.
With Smartly, you’ll never miss a payday filing! Once you have processed payment or we have on your behalf, we take care of the rest.
Although you are not required to use payroll software to process payroll, you are still required to keep records.
For example if you are calculating tax deductions and wages on a spreadsheet, you must keep those records for at least seven years.
You can use any system for payroll, but IRD and employees are allowed to request a copy of payroll details at any time. You should be able to produce payslips, wages and tax information relating to an employee any time for the previous 6 years. This is why many businesses opt to use payroll software that can automatically generate pay slips and reports.
Incorrect or unlawful deductions are probably one of the biggest payroll mistakes with the biggest consequences for getting it wrong.
Deductions are any taxes or levies that you take out from an employee's total paycheck.
In New Zealand, this includes things like regular income tax, ACC levies, student loans, child support and KiwiSaver.
You are not allowed to 1) deduct anything that is not required or 2) deduct the incorrect amount for their taxes. For example, some businesses try to unlawfully deduct things such as damage to company property or visa application fees from wages. These are not covered in payroll deductions.
To avoid making mistakes with payroll deductions, you should read the Ministry of Business guide to payroll expenses and set up the following for each employee:
It is much easier to get this right the first time than to try and correct payroll errors and back-pay any remediations down the line!
Fixing payroll errors takes up valuable time and could cost your business unnecessary penalties. As a business you have a responsibility to meet IRD and employee obligations, and Smartly can help you do it the right way, every time.
Smartly is the New Zealand owned and operated payroll software that helps you to run timesheets and payments with ease as well as meet all your payday filing obligations.
Stop wasting time and money with payroll and start using Smartly!
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If you want to learn more about how your day-to-day tasks can be made simpler, you can chat to us to get some insight on how payroll software could benefit your business. Smartly can make the complex tasks seem simple including payroll, timesheets, leave and more! Smartly takes care of most of the faffing, so you can focus on the important stuff.
