5 Common Problems You Find In Traditional Payroll Processes

What Issues Pop Up in Old-school Payroll Systems? 

The most frequent issues include wrong employee classification, pay mistakes poor overtime tracking, tax reporting slip-ups, and messy payroll records. These problems cause late payments legal risks, and extra costs. 

5 Common Problems You’ll Find in Old-School Payroll Systems 

Many Malaysian companies—small and medium-sized ones—still use spreadsheets, do calculations by hand, and keep paper records to handle payroll. This method might seem to save money at first, but it often causes mistakes that end up costing much more. Old-school payroll methods can’t keep up with new rules different pay structures, or changes in the workforce. 

Before you know it, one wrong calculation or forgotten deduction can turn into late payments upset workers, or even fines from LHDN, EPF, or SOCSO. 

Here are the most common payroll problems companies face—and why moving to computer-based payroll systems is becoming crucial in 2025 and beyond.

1. Classifying Employees 

Mistakes in payroll often begin with classifying employees. When you have many different types of workers—full-timers, part-timers, contractors, interns, and freelancers—it’s easy to mix up their categories. 

This can cause problems like: 

• Using incorrect pay rates 

• Making wrong EPF/SOCSO/EIS payments 

• Paying too much or too little 

• Putting employees on the wrong tax plan 

Even in a small business with less than 50 workers confusing a contractor with a full-time employee can mess up payroll accuracy and hurt team trust. 

2. Miscalculating Pay 

Payroll errors incorrect salary calculations, are frequent and expensive problems in old-school payroll systems. Even business owners who pay close attention to details can slip up when they rely on doing things by hand. 

Common situations include: 

• Paying too much or too little in wages 

• Making wrong retroactive changes 

• Skipping the first paycheck for new employees 

• Taking out incorrect amounts for perks or benefits 

• Paying employees on leave or medical absence 

When a mistake happens, HR has to look into it double-check records, and fix the error—this holds up payroll and makes employees unhappy. 

3. Not Keeping Up with Employee Hours 

Keeping track of attendance by hand often results in wrong overtime calculations. This poses a big risk under Malaysia’s Employment Act where OT rules are tough and need accurate records. 

Payroll errors occur when: 

• Workers skip breaks 

• Employees move between different work locations 

• Training or company events happen outside regular hours 

• Shift extras and allowances aren’t updated 

• Managers turn in late attendance records 

One mistake in OT calculation can impact more tax years forcing the company to fix many payroll cycles and pay back or take back money. 

4. Risk of Getting Taxes Wrong 

Payroll isn’t just about base pay. Employers need to think about: 

• Overtime 

• Bonuses 

• Commissions 

• Allowances 

• Benefits-in-kind (BIK) 

• Equity-based awards 

• Travel or gift incentives 

LHDN may classify even small gifts or awards as taxable income sometimes. 

Not reporting leads to: 

• A higher chance of audits 

• Fines for not following rules 

• Wrong tax calculations for employees 

Manual payroll systems find it hard to keep up with frequent changes to EPF rates, PCB formulas, and SOCSO rules. 

5. Messy Payroll Records

When companies rely on spreadsheets, emails, or manual data entry for payroll, mistakes can go unnoticed for weeks—or months. 

A messy system results in: 

• Employee details not found 

• Entries either missing or repeated 

• Payments not noticed 

• Fixes take too long 

• Not ready for audits 

• No one to cover when payroll staff is out 

When audits or internal checks happen, this messy setup becomes a business risk. 

Old-School Payroll vs. Digital Payroll Systems 

Issue	Traditional Payroll	Automated Payroll Software
Accuracy	High risk of human error	Auto-calculated with built-in formulas
Compliance	Manual updates, often outdated	Real-time statutory updates (EPF, SOCSO, EIS, PCB)
Time spent	Slow and repetitive	Faster with automation
Recordkeeping	Scattered and disorganised	Cloud-based and centralised
Scalability	Hard to manage growing teams	Easily handles multi-branch & multi-pay structures

Tips to Dodge These Payroll Headaches 

The best fix? Switch to an all-in-one payroll system. New payroll software streamlines everything—from check-ins to pay figuring to government paperwork—cutting down on paper files and manual work. 

A digital payroll system lets you: 

• Link attendance, e-scheduling, and payroll 

• Calculate EPF, SOCSO, EIS, PCB 

• Create payroll 

• Use online employee files 

• Keep records ready for audits 

• Boost teamwork between HR and Finance 

With fewer mistakes and quicker processing, HR can put more effort into employee satisfaction while Finance can handle compliance and reporting better. 

Conclusion 

Old-school payroll methods put Malaysian companies at risk: mistakes, holdups legal troubles, and unhappy workers. As businesses expand and labor laws get trickier doing payroll by hand just doesn’t cut it anymore. 

Moving to an automated payroll system makes sure you pay people right, keeps your business out of trouble, and makes monthly tasks run . 

To make payroll easier and compliant, Info-Tech provides a complete payroll software designed to meet Malaysian legal requirements. 

Contact Us For A Free Demo!!! 

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