Payroll errors are a common problem that can have serious and expensive consequences. According to a recent study conducted in the US by Ernst & Young, a company has an 80.15% payroll accuracy rate, meaning around 1 in 5 payrolls have errors. The survey shows that a company makes 15 payroll corrections per payroll period, and fixing each error costs around $291USD.
5 Most Frequent and 10 Most Costly Payroll Errors
According to the report, payroll errors related to time/attendance and expenses are the most common, occurring on average more than once per employee per year. Vacation, time off or sick leaves errors followed them. Discover the most common payroll errors and how much they cost their companies:
|Payroll Error Category||Frequency
(per 1,000 employees)
|Cost in USD
(per 1,000 employees)
|Time/attendance and expense||1,139||$248,735|
|Vacation/Paid time off/sick time requests||721||$219,289|
|Schedule earnings and deductions||410||$135,294|
|W-4 and tax allocation changes||229||$134,975|
Going deeper into these categories; these are the 10 most costly errors by estimated total (direct and indirect) labour cost per 1,000 employees in USD:
- Sick time not entered ($70,335)
- Missing time punches ($47,263)
- Missing expense/expenses not input ($45,562)
- Visa status update error (not made or made incorrectly) - US ($44,382)
- W-4 setup error - US ($43,456)
- Lunch/cafeteria plan error (not made or done incorrectly) ($40,878)
- Vacation/PTO time not entered ($40,661)
- Direct deposit setup input error ($35,262)
- Vacation/PTO requested that is not available/accrued ($33,660)
- Incorrect allocation of employer-controlled earnings (e.g., jury duty, bereavement) ($31,330)
How Can We Reduce Payroll Errors?
To minimize the risk of errors, employers can turn to reputable payroll software providers that offer a range of features to help reduce errors. For example, some providers offer automation of tasks such as tax calculation, compliance updates and direct deposit, which can reduce the risk of human error. Some providers also offer employee self-service portals, where employees can update their personal information, review paystubs, and request time off, which can also reduce the risk of errors. Check the top ten payroll software providers that will help you minimize payroll errors.
The lack of proper training is also a significant contributor to payroll errors. When employees are not adequately trained on how to use payroll systems they are more likely to make mistakes. Some payroll software providers may not provide adequate training or user support, leading to employees not fully understanding how to use the system properly, so making sure your payroll staff is well trained and knows exactly how to use the software is vital.
Ensuring that the company’s payroll systems and software are up-to-date and properly maintained is also essential for reducing errors. As data shows, payroll errors can have serious consequences. Not only can they lead to financial losses, but they can also lead to legal and compliance issues.
Help fellow colleagues by sharing your best tips for reducing payroll errors (& your favourite payroll software vendor!) in the comments below.
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