8 Ways You Can Screw Up Your Payroll Process And How You Can Dodge It

Do you need a clear picture on how and which mistakes forced companies to shell out all that cash?

Do you still complete your payroll process with a pen and paper, or excel sheets for that matter? Are your attendance, timesheet and data records lying in dust-covered registers? By the look of it, you’re probably facing major payroll issues, not to mention, your company is leaking money and you are possibly heading towards lawsuits.

You are not alone in this mess. About 42% of the companies who rely on traditional methods for calculating salaries sail in the same boat as you. Not just that, they have lost lakhs of rupees annually in correcting the mistakes that took birth from the adoption of manual work.

Do you need a clear picture on how and which mistakes forced companies to shell out all that cash?

Take this real-life example. An Indian retail company had 100 employees in total. 61 of these were full-time employees while 27 others were contract-based and the rest 12 interns. Despite the size, they chose to go the traditional way of handling payroll. When it was the time to calculate and credit salaries, the company made a small error. It tabulated a full-time employee as a contract-based employee. This resulted in the former being denied his/her overtime wages and a considerable difference in the base amount. Moreover, as contract-based employees aren’t taxed, the company witnessed itself in the midst of tax-theft accusations, meaning legal trouble. Though the company saved itself from lawsuits from the employee’s side, it faced heavy penalties, fines and payroll mismanagement lawsuits from the court. By the time it got out of the ruckus, it had spent over 20 lakh rupees!

Shocked that an honest mistake cost years of revenue?

This is the effect a payroll process has on a company. Think of it as oxygen. No one notices its presence, but its absence sucks life out of everyone.

If we think about it in a simpler way, a payroll process is nothing but the procedure of crediting salaries to employees based on the amount of work they have done, or as per their contract/fixed pay. Seeming easy and doable right? Think again. The actual process requires the correct tabulation of the employee timesheets, attendance, work, position, and a dozen other things. A tiny mistake in any of these can cost your company a lot of money and legal problems.

If you’re still not convinced, here are the ways manual payroll process completion can push your company in dire situations:

1) Miscalculation of overtime wages:

According to the Section 51 and Section 59 of the Factories Act - 1948[2] of India, the maximum working hours for an employee are 48 in a week and 9 in a day. If he works for more than this period, he is entitled to receive double of his regular wages per hour.

However, the private sector has some differences and each company sets its own bunch of HR policies. If your organization does furnish overtime wages to its employees, it is vital to keep a record of these documents. Miscalculating them means inviting interest, penalties and other financial problems that come hand in hand with old regimes of payroll evaluation.

2) Vulnerable paper docs and mishaps:

Papers, files and registers are perishable. Comes in an unfortunate situation like a flood or a fire and years of documents can go up in flames or destroyed by the gushing water. Excel sheets are no better than paper docs. We are all aware of computer viruses and data deletion. A slightest mistake can rob you of all the sheets created. Apart from the fire or flood tragedy, you will also be freaking out about how you will be calculating your payroll now with no employee’s working hours record.

Not just that, registers can be easily changed and manipulated. There have been several cases  where employees altered the number of hours mentioned in the paper documents.

3) Compliance gone down the drain:

Unless you love lawsuits for wrong compensations or are overly confident about the people who manage your payroll calculation, you will not continue using pen and paper for staying compliant with the regulations.

Complying with all the government-set laws is not a piece of cake. Legal cases erupted from not following the laws will land you in the dock.

4) Buddy punching system:

Colleagues often turn good friends, that’s not an issue. The problem arises when these good friends mark attendance for their absent friends. It is as easy as letting the buddy swipe his debit card for him. This becomes worse for companies that are using paper timesheets.

Though the problem is real and happens frequently, there is no cure to it except the adoption of technology. Today, we have digital methods that can track time, leave and attendance through biometrics, selfies, and more that can ensure time thefts become antique.

5) Human typo errors:

Mistakes happen. We are only human. However, sometimes mistakes can prove to be very costly. Imagine your HR writing ‘20’ instead of ‘2’ as the working hours of a specific person. Small mistake, right? Just a zero is added.

If we say the hourly pay for the employee was Rs. 500, he was supposed to receive Rs. 1000 for the work he did. Yet, he was credited with Rs. 10,000! If things continue this way, the employer will have no option but to shut down the company.

6) Working on holidays:

Mix-up of time overlapping can lead to serious consequences. If a person who is on a vacation has a sudden work requirement and does it for a certain number of hours, he is supposed to receive the pay for it. The calculation is not so difficult when the company size is small.

However, as and when you grow, this problem takes the centre stage. It becomes tough to keep a track of the time and name of employees who worked on their leave.

7) Misclassification of employees:

Super simple to do and super expensive to the employer. Wrongly noting a manager as an intern and an associate as a level 5 employee can create a huge ruckus. Lawsuits are bound to follow if the situation isn’t brought under control.

Along with the internal issues, professional tax not paid will be levied on the employer who will have to not only pay the government but also the right wages with compensation to the employee.

8) Sleepy staff filing taxes late

Taxes change from time to time. The rules and figures you started with, might not be applicable today. It is important to follow this shift with the government’s changes as it can financially harm the company tremendously.

For example, the Indian government released the new taxing regime earlier this year. If the payroll staff of your company doesn’t file taxes according to the employees’ choice on time, you will have to face the sword ultimately, not your staff.

With the complexities attached to a payroll process, it is easy to actually fall in its trap if manual methods are followed. If your company is already seeing itself in the pitfall, then you’re aware of the consequences that came by sticking with the traditional route.

The only thing that can help you dodge this situation is the adoption of an HRMS tool. Technology isn’t as complicated and expensive as you think it to be. If it looked expensive, then you must have been on the pricing page of the wrong software.

Agreeably, startups are jam packed with financial requirements- right from paying their employees to the hefty electricity bills. Hence, they often disregard payroll software and consider such tasks to be feasible manually to save money. However, the lack of a transparent accounting system can lead to serious economic hardships, so much so that the funds which stopped them from hiring a software can be lost in multiple folds due to the absence of it.

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