New business owners would opt for traditional style payroll processes as they need to know the cash flow of their businesses. Often, they would use tools like Excel sheets to make their calculations after they manually count their profits. However, these are prone to problems and mistakes that can cost businesses more than they expect.
Common Problems You Find in Traditional Payroll
Even as you meticulously check every account for your businesses, you can end up causing these common problems when calculating payrolls:
Misclassifying Employees
There’s a chance you might end up misclassifying your employees which can cause under or over-payment. Even in a business of fifty employees or lower, you can accidentally misclassify employees, for example, you may mistaken a full-time employee with contract or part-time and vice versa. This can end up paying the wrong employee the incorrect wages and cause a strain between your employees.
Miscalculating Pay
The worse thing could happen is miscalculating employees’ pay. You can be detail-oriented but human errors can’t be avoided as staring at numbers can make one confused. Miscalculation can force you to restart all over, wasting time and causing late payment to employees. Plus, any mistakes can force you to investigate which you have to dedicate many hours to fix it.
Some of the common miscalculation scenarios are:
- Overpaying or underpaying employees
- Making erroneous retroactive payments
- Missing the first paycheck for new hires
- Deducting the wrong amount for benefits or other payroll deductions
- Improperly paying employees who are on disability or other leaves
Losing Track of Employee Hours
Miscalculating overtime hours can lead to incorrect overtime payments, necessitating adjustments that may affect several tax years. Rectifying these mistakes is time-consuming and can cause significant concern for employees, whether they’ve been underpaid or overpaid and need to reimburse the employer.
Overtime compensation isn’t simply about paying employees 1.5 times their regular hourly rate for working more than 40 hours in a week. Mistakes in overtime payments can also occur in various situations, such as:
- When employees work through their breaks
- When employees need to travel between different work locations
- When employees are required to engage in activities outside their usual hours, like training, team building, or company events
Risk of Tax Miscalculation
Employee compensation extends beyond basic wages, including overtime, commissions, or bonuses. It’s important to also account for other taxable benefits when reporting to the Inland Revenue Board of Malaysia (IRBM), such as:
- Equity awards like stock options
- Employee incentives, for instance, gift vouchers or travel rewards
- Personal usage of a company vehicle
Even minor gifts or awards to employees might not seem like remuneration, but IRBM could consider it part of your payroll. Failing to declare these additional forms of compensation could lead to penalties for both your organisation and the employees involved.
Disorganised Record
A chaotic and inefficient payroll system is a surefire route to problems. Depending on traditional payroll procedures, manual entry of data, or a jumble of Excel spreadsheets can lead to mistakes that might take weeks or months to identify. Disorganised records might also result in overlooking an employee’s payment or neglecting items that require immediate attention.
Without a streamlined and automated payroll system, it becomes challenging for someone else to step in when the payroll manager is unavailable or departs from the company. This situation could also pose issues during an audit or process evaluation.
How to Avoid Problems and Improve Your Payroll
An integrated payroll system streamlines payroll operations by automating them, which helps eliminate the need for manual input and the reliance on paper-based methods that frequently lead to mistakes. Moreover, such a system ensures payroll tasks are in harmony with time attendance, scheduling, and the selection of employee benefits, allowing for effective workforce management and uniformity between payroll and HRMS.
If you’re looking for a payroll software provider, you can contact Info-Tech at [email protected], call +603 6050 0333 or WhatsApp us at +60 1890 14671.