How to prevent payroll errors: 5 common issues

How to prevent payroll errors: 5 common issues

April 27, 2022

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Payroll can be an unforgiving place for global employers to make a mistake.You can wade into some hot water if you’re not running a tight ship.

That’s why global companies put an awful lot of emphasis on tracking andcorrecting common payroll errors. In fact, a 2019 global payroll benchmarkingsurvey found that 89% of global companies report payrollerrors as their top concern.

Why do these payroll mistakes happen?

What are the most common payroll mistakes? And how can you prevent them?

Let’s take a look.

Why payroll mistakes happen

Why do errors happen? It’s not typically due to a lack of experience.

Collectively, the payroll industry is full of talent. The average professionalhas 12 years of experience, most of which isat their current organization. Plus, they’re educated—most have obtained afour-year degree and complete an average of 20 hours of additional trainingper year.

Payroll errors happen because there are so many variables to get exactlyright.

Different rates of pay for different employees and different reasons ( e.g ,overtime, bonuses) is only the beginning. Global employers are at the mercy ofa different set of rules for every country they operate in–including currency,deadlines, and regulations that impact payroll.

Still, the largest percentage of payroll errors happen because there is aproblem with the flow of information. Things like missed time clock punchesand manual data entry errors account for more than one-third of off-cyclepayments, indicating that inefficiencies in upstream payroll processes are thebiggest culprit.

What payroll mistakes should you watch out for?

With multiple differences across each country, global payroll can have a lotof moving parts. Here are the most common sticking points.

1. Calculating pay in the wrong currency or exchange rate

Running accurate payroll is all about crunching numbers—but there can be a lotof variables in the equation.

You may be calculating pay based on an assigned rate and a variable number ofhours worked. Then you often have to consider overtime wages, leavebenefits, as well as tax rates and withholdings.

And that’s just a typical Tuesday in the payroll office.

Global employers are also working with different currencies for each country,plus a variable exchange rate that’s different from one day to the next. Evenwith clean data, it’s easy to see how payroll can be miscalculated.

In reality, poor organization and late reporting pile onto the challengingtask of calculating an accurate payroll, which compounds your risk of errors.The best way to stop these errors in their tracks is to address these causes.

Spend more time getting organized and enforcing hard deadlines with otherdepartments. Every calculation should be automated through your payrollsoftware. Letting go of spreadsheets and getting the right payroll system inplace can help your payroll processing run more seamlessly.

2. Missing deadlines

Missing a payroll deadline generally comes with financial repercussions—likepenalties and interest.

Your payroll department has to stay on top of making tax payments andinsurance premium payments on time.

With every payroll cycle.

In every country where you operate.

The only way to keep the trains running is to create a master payroll scheduleand stick to it.

3. Outsourcing to the wrong payroll provider

Outsourcing payroll functions is common practice. More than 73% of globalbusinesses currently outsource at least one function—and payroll is a favorite when it comes tooffloading tasks.

Outsourcing to a third-party payroll service can be a great way to buildefficiency and manage your payroll risks with local expertise.

But we have heard a story or two about mismatched expectationsand providers that overpromise and underdeliver. It takes a lot of legwork towrap your head around what services are being offered.

Before you commit to a payroll provider, consider:

  • The flexibility of the service structure
  • The provider’s inclination towards proactive or reactive service
  • Commitment to customer service vs. shared successes
  • The vendor’s business model—technology, global services, HRO, etc.

4. Not being set up to hire abroad

Even as the digital world embraces a more remote workforce andmore fluid geographical boundaries, there are steps you need to take beforelegally employing workers in other countries.

At a minimum, you’ll need to register your business with local taxingauthorities so you can pay your bills. And there are different rules for everyjurisdiction— hiring and paying workers in China is differentfrom Latin America or even Germany, forexample.

Working with an international payroll provider can make theprocess of getting set up and paying the right amount in taxes a lot easier.

5. Getting confused about global employee benefits

Sometimes healthcare is provided by the local government. Sometimes employeesare on the hook for private insurance. And sometimes there are laws thatdictate how much and what type of health insurance an individual is requiredto purchase.

For example, in the Netherlands, all employees are required to carry basicminimum healthcare insurance. If they try to skirt this requirement, the Dutchgovernment will enroll them into a government-managed plan and garnish theirwages for premiums.

And the same ambiguity surrounds other benefits like paid leave—maternityleave, paternity leave, bereavement, you name it.

There’s a whole ecosystem of cultural factors and regulatory control that varyfrom one country to the next. It’s easy to forget that these benefits don’twork the same for every employee in a global company.

The best solution is to develop a global benefits strategy that addresses the minimum needs of every country where you do business—while equalizing the benefits across the global organization for fairness.

Get global payroll under control with a centralized payroll provider

Running a global business invites complexity. As you try to blend the needs ofdifferent governments and cultures with your organization, it gets easy tolose control of processes, oversight, and spending.

The right centralized payroll provider can help you to maintain the rightamount of control over your payroll and improve efficiencies—thus reducing thelikelihood of many common global payroll errors.

A payroll provider can help your company process payroll more seamlessly — learn more about your options here: Finding the best internationalpayroll providers

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