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Top Five Payroll Mistakes — and How to Avoid Them

Written by Nik Rothstein | Aug 11, 2022 1:06:30 PM

Effective and compliant payroll management proves an almost constant challenge for staffing agencies of every size. Staffing agencies often assume that managing the process on-premise can be an easy way to control overall costs. However, they quickly learn that internally handling payroll is not as straightforward as they initially believed. 

You Have More Important Things To Do For Your Staffing Agency Than Paperwork

Many business owners find it difficult to stay on top of shifting payroll laws and continually evolving tax regulations, all while trying to grow their recruiting operations. Processing payroll for your staffing company is not only time-consuming and highly complex, but it can also be costly. Each year countless small to midsize businesses face IRS penalties due to payroll inconsistencies and mistakes. 

Payroll discrepancies that lead to fees, fines, and violations can not only impact your company’s bottom line—they can also damage your company’s reputation. Knowing some of the most common payroll mistakes and how to avoid them can help you eliminate a minefield of potential errors that can cost you and your employees time, energy, and money. 

  1. INCORRECTLY CLASSIFYING WORKERS
    Properly classifying workers as an employee or an independent contractor can be a full-time job in itself. It can also prove a costly mistake for staffing owners. Wrongfully classifying one of your internal employees as an independent contractor or failing to provide overtime payments to non-exempt salaried staff members are just two of the many ways your company can incur a potential violation of the Fair Labor Standards Act (FLSA). Potential fees and penalties can be swift—and steep.

  2. FAILING TO KEEP ORGANIZED AND COMPLETE RECORDS
    Many business owners only focus on the current tax year at hand when it comes to maintaining their records. However, the Fair Labor Standards Act also requires employers to keep thorough pay records, with information outlining specific details such as:
    • Hours worked
    • Payment rates
    • Date of every payroll

  3. INPUTTING WRONG EMPLOYEE DETAILS
    A lot of mistakes can happen when inputting employee information and details, resulting in incorrect payments and IRS red flags. This is especially common for staffing companies working with separate onboarding and payroll processes. Always double (and triple) check the data provided during the onboarding process for the correct:
    • Full legal names
    • Current address
    • Employment start and termination dates
    • Date of birth
    • Tax file numbers
    • Hourly rates
    • Gross wages
    • Employment periods

  4. SUBMITTING INCORRECT PAYROLL TAX AMOUNT
    Payroll tax legislation is challenging—and constantly changing, making it easy to submit the wrong amount of payroll tax at any point. The IRS does penalize this type of mistake. While they may forgive a first-time error, they can eventually start charging your business an accrual penalty ranging from 2 to 10 percent of total payroll.

  5. PAYMENT MISCALCULATIONS
    Miscalculating pay can happen often, frustrating workers and resulting in missed payments.

    Some of the most common payment errors can include: 
    • Over/underpaying workers
    • Failing to send first paychecks
    • Incorrect deductions
    • Inaccurate retroactive payments

    Additionally, many staffing agencies miscalculate payments for employees who are out on disability and other types of leaves. 

How To Avoid Making Payroll Mistakes at Your Staffing Agency

Understanding complex tax laws can be a good first step to avoiding payroll mistakes at your organization. Unfortunately, most staffing agency owners don’t have the time, tools, or desire to navigate changing tax landscapes effectively. As a result, they may consider bringing in a full-time payroll/accounting employee. While a dedicated employee does help with tax regulations and compliance, hiring an internal resource can significantly increase overhead. 

For many staffing agencies, outsourcing all of their back office obligations to an experienced provider delivers an ideal way to avoid making costly payroll mistakes. A skilled back office expert will effectively manage your payroll process — and so much more. Your chosen vendor will also coordinate the entire onboarding process, manage HR function, and even monthly reports to help you determine financial patterns that could impact your working capital. Most importantly, a seasoned back-office specialist absorbs all of the responsibility and risk on behalf of your business, allowing you to focus on growing your total headcount instead of getting mired down in payroll and paperwork. 

Contact Headcount Management to Learn More About The Back Office

Schedule an appointment to learn more about how Headcount Management’s The Back Office can help your staffing agency avoid costly payroll mistakes.