How Shortcuts in Payroll Administration Put Companies in Compliance Jeopardy

October 30, 2018

According to The Risky Business Survey conducted by The Workforce Institute at Kronos Incorporated, over 60 percent of payroll professionals know that their companies regularly cut corners in ways that can compromise payroll compliance. These compromises can put the company into serious jeopardy, potentially causing a dizzying array of consequences that can affect everyone. Sadly, such missteps aren’t unusual.

Where Do These Errors Come From?

Many of the problems that result in compliance errors are straightforward, such as a failure to properly categorize employees, claiming that someone is an independent contractor when they are actually working for the company. The best-known example of this mistake is the Microsoft temporary employee case. Microsoft was found to have miscategorized employees as contractors. This resulted in Microsoft having to pay nearly $100 million in a class-action settlement.

Another simple issue with compliance that comes up more often than it should is a failure to calculate and pay overtime correctly. This is sometimes due to additional overtime rules in states like Rhode Island or Massachusetts, but the error can also come from a failure to re-calculate overtime rates after employees get pay increases.

Compliance errors can also be tied to paperwork. Form 941 needs to be filed on a quarterly basis and the 940 must be filed annually, but these forms are often filed late. Another compliance issue that often comes up is related to the I-9. Employers have 72 hours to complete the I-9 which certifies the eligibility of new hires to work in the United States. This is usually completed when a new hire submits their initial paperwork. However, required follow-ups – such as when an employee changes their name, visa status or renews their residency – are often simply not completed.

Any of these mistakes or oversights will cause a company to be out of compliance and can result in sizeable fines. But by far the most common and concerning shortcuts come from good intentions.

Payroll Shortcuts: When The Best Intentions Just Aren’t Enough

Human Resources in general, and especially Payroll, is not a department for lazy people looking to quickly get through a day’s work. Still, this doesn’t prevent ill-considered shortcuts from being made.

According to Joyce Maroney from The Workforce Institute at Kronos, “HR and payroll professionals … don’t cut corners because they’re careless: Usually it’s because they’re overburdened, understaffed or lack the proper resources required to handle anything above and beyond [the] day-to-day activities required to run the department.”

As most human resources professionals can tell you, Human Resources and Payroll are cost centers, meaning they don’t contribute to the bottom line. In the 21st century, that belief is simply, and demonstrably, false. However, companies are often slow to update their systems. In the same survey, over two-thirds of respondents said that their payroll systems are more than five years old.

Out-dated Payroll Systems and Legal Changes

Take a moment to consider the state of Massachusetts. The Grand Bargain, which was signed into law this summer, calls for massive changes in compensation, overtime and leave administration. These changes are scheduled to take effect in stages over a period of five years, which might seem helpful if you’re not a payroll professional. But to Payroll Administration, it can look like an oncoming train.

The changes that are coming with The Grand Bargain are an extreme example of changing labor laws. Even if your company isn’t in Massachusetts, your state is very likely to update or even implement new laws regarding labor which your company will be obligated to comply with. If your company’s payroll software isn’t up-to-date, you will likely be in serious danger of failing to follow regulations.

How Do We Fix This?

Your company may not have the money or inclination to hire more employees or buy and implement new software. How do you address these issues?

It’s true that there once was a time when deploying new payroll software was both expensive and disruptive. However, with the advent of cloud computing this is no longer the case. Companies can now use top-rated software packages, like iSolved Payroll, to combine all their pay functions on the same platform. You can now have a system that brings all the different elements of your pay cycle together under one platform, a platform that is maintained (and most importantly, updated) by dedicated experts. The options available now are completely scalable to meet your business needs without spending a huge amount of capital or upgrading your hardware.

Just as important as having the right software to manage your payroll and other Human Resources functions is support. When you work with the right Human Capital Management company, or HCM, you can have expert assistance easily and quickly. For instance, Commonwealth Payroll & Human Resources can not only help you transition to using a new payroll platform, but they can help you deal with changing laws, along with minimizing or eliminating other errors that put your company’s compliance in jeopardy.

For more information on how Commonwealth Payroll & HR can work with you on your strategic human resources planning, call us today at 877-245-1159

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