Stop Trying to Run Payroll Yourself — Here’s What Can Go Wrong

Running payroll manually can lead to wage-and-hour complaints and lawsuits, governmental penalties, dissatisfied employees, and more.

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Payroll isn’t just about paying employees for wages earned. It’s also about complying with payroll laws, adhering to rules established at the company level, managing employee information, and securing payroll data. These are all critical operational duties, and trying to do them yourself manually can lead to costly mistakes.

Here’s what could go wrong — and how payroll software can help.

Dissatisfied employees

Sixty-three percent of employees say they have been living paycheck to paycheck since the COVID pandemic began. Even before the pandemic, most employees were living paycheck to paycheck. Consequently, employees do not welcome paycheck errors — especially those resulting in underpayment.

One study reveals that 82 million new hires would leave their employer if their first paycheck was incorrect.

One study reveals that 82 million new hires would leave their employer if their first paycheck was incorrect. Further, 49% of employees would start looking for a new job after encountering only 2 issues with their paychecks.

Running payroll on your own manually means that you calculate gross-to-net wages by hand, making paycheck errors more likely.

The solution: Payroll software calculates gross-to-net wages, saving you time and increasing paycheck accuracy.

Wage-and-hour complaints and lawsuits

If you fail to pay wages owed in an accurate and timely manner, the employee can file a wage-and-hour complaint with the federal or state department of labor. Or, they can file a lawsuit against your company.

Note that in FY 2021, the United States Department of Labor helped more than 190,000 workers by collecting over $230 million in back wages. Moreover, wage and hour lawsuits are continuing to rise. The most common issues are timekeeping errors, misclassifying employees as independent contractors, or erroneously classifying employees as exempt from overtime.

Wage-and-hour lawsuits can cause significant reputational harm for employers. For example, employees may sound the alarm on company review sites or social media, warning potential candidates to stay away.

The solution: Payroll software minimizes the risk of wage-and-hour complaints by automating timekeeping practices and ensuring accurate classification of employees, independent contractors, and exempt workers.

Payroll software minimizes the risk of wage-and-hour complaints by automating timekeeping practices and ensuring accurate classification of employees, independent contractors, and exempt workers.

Governmental penalties

Regardless of how many employees you have, you’re required to comply with payroll laws, such as the following:

  • The Fair Labor Standards Act: federal minimum wage, overtime, child labor, and recordkeeping
  • State wage-and-hour requirements: minimum wage, overtime, child labor, recordkeeping, paydays, pay stubs, etc
  • Federal, state, and/or local payroll tax laws: tax withholding, tax deposits, tax filings, W-2 processing, etc
  • Other mandatory paycheck deductions: wage garnishments, paid sick leave, state disability insurance, etc
  • Voluntary paycheck deductions: pretax health insurance, flexible spending accounts, 401(k), etc
  • Payroll processing rules for terminated employees

Payroll laws are enforced by the designated federal, state, or local agency, which also imposes penalties on employers who fail to comply. Depending on the severity of the violation, employers may be subject to audits/investigations, civil money penalties, and/or criminal prosecution.

Keep in mind that government agencies are increasingly mandating employers to perform certain payroll tasks electronically. For example, the Internal Revenue Service (IRS) requires employers to make federal employment tax deposits electronically.

The solution: Payroll software is key to administering payroll according to the rules and regulations and avoiding penalties from the government.

Scattered payroll workflows

Imagine doing all of the following by hand or with spreadsheets:

  • Tracking, collecting, and calculating employees’ time
  • Computing all types of compensation, including hourly wages, salaries, overtime, bonuses, commissions, retroactive pay, and so on
  • Calculating federal, state, and/or local taxes to be withheld from employees’ wages
  • Determining pretax and post-tax paycheck deductions
  • Paying employees via paper checks instead of direct deposit
  • Figuring your own (employer) payroll tax liabilities
  • Filing payroll-related reports with the government
  • Remitting paycheck deductions to third-party entities
  • Reconciling time cards and wage payments for each pay period
  • Issuing Form W-2s to each employee
  • Storing payroll records for exempt and nonexempt employees

If you do these tasks manually, it will be difficult to maintain a cohesive payroll system. You will likely be overwhelmed by paper clutter and a disorganized, stress-inducing payroll experience.

The solution: Payroll software automates the payroll process and streamlines workflows.

Lack of synchronization across related departments

Much of the information that flows into HR and benefits affects payroll in some way. One payroll error may end up triggering not only payroll problems but also issues with HR and benefits. The error may also impact your financial statements.

The solution: All-in-one software integrates HR, benefits, and payroll processes into one unified platform, promoting harmony among all 3 functions. You can also integrate with third party apps, such as financial management software.

No employee self-service

If you do payroll manually, then your employees will not have access to a self-service portal, and this may put you at a competitive disadvantage. Employees today want instant access to their pay and benefits information and most employers are supplying it. A 2021 survey found that nearly 88% of employees are able to access their pay and benefits information instantly through self-service technology.

Without self-service, employees are forced to rely on the HR/payroll staff for issues they could have resolved on their own if they had access. This deprives the HR/payroll staff of valuable time that could have been spent on higher level work.

The solution: Payroll software comes with self-service technology that employees can use to manage their pay and benefits information online.

Payroll data insecurity

Well built payroll software comes with a secure infrastructure for maintaining payroll records. It also helps foster a paperless payroll environment.

Employers have an obligation to secure sensitive and confidential payroll data, including employees’ Social Security numbers and bank account information. But if you do payroll manually, data security can be challenging, as hard copy documents can fall into the wrong hands.

The solution: Well built payroll software comes with a secure infrastructure for maintaining payroll records. It also helps foster a paperless payroll environment.

Payroll software is affordable

Considering the risks of manual payroll and how affordable payroll software can be, it’s hard to justify doing payroll manually. Zenefits is even offering free payroll for one year with an annual subscription to select HR software packages.

If you’re ready to take the payroll-software plunge, it’s important to choose the right product. Make your search easier by following the Zenefits Payroll Pocket Guide — which delivers step-by-step instructions for selecting the perfect payroll solution for your business.

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