Payroll Errors Have a Human Cost: How to Save the Day

A couple of years ago, actor Tom Hollander — famed for his role as Cutler Beckett in the Pirates of the Caribbean franchise, in addition to other films and TV shows — revealed he mistakenly received a “seven-figure” paycheck belonging to the similarly named (albeit more famous) Tom Holland, aka The Avengers era Spider-Man.

While it’s no surprise this story made headlines, we can’t all be superheroes or box-office megastars who likely don’t need to be worried about a delayed check. For the average earner — with bills to pay, a family to support and no multi-million-dollar contract — the reality of a single payroll error places people in real jeopardy.

Pay-related mistakes in the workplace have serious consequences for employers, and most importantly, their employees. A growing distribution of workforces, in conjunction with the increasing complexity of payroll processes, can heighten the risk of potential errors.

The Most Common Payroll Blunders

Getting payroll right is one of the most basic expectations an employee has for their employer, but mistakes still occur. It’s reported that one in five employees experiences inconsistencies in their monthly paychecks. According to our research, 18% of business leaders say payroll complexity is one of the biggest challenges they face when employing a distributed team. Here are some of the most common mistakes organizations make:

• Underpaying employees. When an employee is paid less than they’re owed, it might be due to an error during onboarding, paying bonuses or back-paying promotions.
• Overpaying employees. If an employee mistakenly receives more than they’re owed, their employer has the right to claim the money back. However, they should discuss repayment options with the employee rather than deducting money from their wages without letting them know.
• Missed and late payments. If an employment contract includes a payment date clause, late payment of wages can be classed as a contract breach. If legal action is taken, this can even lead to financial penalties for employers.
• Misclassifying employees. Misclassification happens when an employer incorrectly categorizes an individual’s employment status. For example, an employee may be wrongly classified as an independent contractor, despite meeting the criteria that would entitle them to the rights of an employee.
• Incorrect tax. An incorrect tax calculation or the wrong tax code can lead to an employee paying too much or too little tax. In the latter case, the employee is normally responsible for paying any unpaid tax.
• Missing deadlines. If an employer misses a payroll deadline, they can incur penalties due to late payment of taxes.
• Failing to report taxable compensation. Employers may fail to disclose all forms of taxable compensation, which includes equity compensation, private medical insurance, employee rewards, and company cars, in addition to salary, overtime, commissions and bonuses.

These mistakes are ultimately avoidable for any business, whether they’re local or growing across borders. The role of payroll management is to work for the employee and make sure people are taken care of in a different way than they were in the past.

The Real Impact of a Payroll Blunder

Poorly run payroll impacts talent retention, sentiment toward the organization and motivation to work for that organization. Getting payroll wrong is a very easy way to make employees feel that an organization doesn’t care for them or value their work.

After all, pay is not so much about work as it is about life. If someone doesn’t get paid correctly, they might not be able to care for themselves or their family. Nor can they go on vacation or save for their future (buying a house or higher education comes to mind).

If businesses say, “We pay employees well,” it won’t mean anything if they don’t pay people on time. Payroll is an emotional thing, directly impacting people’s lives. If an employee doesn’t get paid on time, or the amount they’re expecting, it can result in genuine consequences like a missed medical payment or something equally vital.

Use Payroll as a Strategic Asset for Your Business

Payroll is a highly strategic asset. If a business treats payroll as nothing other than a back-office function, they’re already behind the times. We need to start seeing payroll as a mechanism to help recruit amazing talent and retain talent by giving people the very best experience with an organization.

Clarity and personalization are some of the greatest considerations for a successful payroll process. If organizations don’t provide employees with understandable and useful insight into the payroll process — what they’re getting paid, how they’re getting paid and why they’re getting paid that way — the organization is doing a disservice to their employees.

As we look to design ways to provide good employee experiences, how can you not consider payroll? Take payroll out of the back office and think of it as something that is really about people and how they perceive the organization. Use it as another vehicle to give employees a great experience while supporting their morale and interest to stay and grow within the company.

Payroll Strategies for an Expanding Business

The reality of payroll strategy is we’ve seen many businesses are growing, but don’t necessarily have a designated payroll person. This can create complications as a business expands, enters regions it hasn’t operated in before and suddenly comes up against new rules and regulations without an advisor who knows the region well.

It’s about taking all the unstructured data and structuring it in specific formats that everyone in the company can understand, simplifying and personalizing the payroll process so it can grow with the business and avoid complications. Payroll partners are particularly helpful in situations where a business doesn’t own an entity where an employee lives, and the payroll provider can act on the business’s behalf to cover legal compliance.

Consistency is also a big issue, particularly in a distributed workforce. Talent is not specific to a location. As your business grows, you may need expertise on a larger scale because markets have local idiosyncrasies. The misconception is really about giving a consistent experience to the employee. Pay slips, for instance, can be the same experience across your company, but the information in them needs to be specific and familiar to the individual. This is a vehicle to show distributed employees that the business cares about their needs, supporting retention and morale at the same time.

Payroll strategy feeds into the flexibility of pay as well. When hiring across regions and backgrounds, some people want cross-currency payments, and organizations should give this ability to everybody to get paid in the currency they would like to be paid in. Others use their pay in a different way, which can be turned into benefits. Why don’t we match donations toward something to help them save money? Doing that is good for the company, but think about the positive effect this has on the employee. While different regions can be specific, everybody in the world is trying to take care of their family.

What I’d say to organizations looking to use the support of a payroll provider or tool is to make sure you work with something where you have the flexibility to choose the technology you want and what the organization feels most comfortable with. It should all feel familiar and not overwhelming or overly complicated.

The Future of Payroll for People

In the next five years, we see organizations focusing on the self-administration of payroll by getting the data in, but in a way that’s easy for them. The role of payroll providers is to guide and advise on what needs to be thought about. For instance, some companies will look to provide a benefit-in-kind, which will then affect taxes, the company and the individual.

There is also a big focus on paying people as quickly as possible. There should be no such thing as a payroll calendar in the next five years. The processing takes longer than it needs to, and payroll should be able to provide people with the ability to get paid when they want.

In the next 10 years, multiple ways of paying people will be available, whether that’s paying in different currencies, a mixture of different ways, or part of their salary at the beginning of the month and part of their salary at the end of the month. We want to see payroll configurable for the individual to help them budget and support their wants.

What About Automation?

As with many elements of business, the role of automation will have a big impact on payroll. The question is just how much? This is a very timely question as we observe the expansion of AI and other generative technologies. There is a lot of talk about roles going away, but we stand by the belief that it’s possible to automate calculations and updates. Payroll will always need an extensive understanding of the organization with a human touch.

While machine learning and AI will enable us to do more things and be more efficient, the permutations of payroll will never go away. The rules are always changing, so there will always be a need for experienced expertise and education from people who can interpret the changes and apply them to an organization. A human touch calls for an understanding and respect of payroll needs and customs across different locations. Payroll will always require the ability to adapt to a continuously changing landscape for organizations to ensure processes run smoothly and all teams are considered.

When technology changes, it opens up new roles and payroll has to adapt. But it doesn’t mean we get rid of people. There will always be technology in the middle with people on both sides.