Core Integra Consulting Services Pvt Ltd

Payroll Compliance Mistakes and How to Avoid Them

As per EY’s 2021 Global Payroll Survey, 67% of organisations realise the importance of an effective payroll and have a formalised strategy in place for the same. The number speaks for itself, stating how businesses of different sizes engage in payroll nuances. In essence, this is directly related to the payroll compliances the companies must adhere to clear the audits.

So many organisations joining the wagon hint at it being critical, and rightly so. But are all organisations equipped with strong enough policies and procedures to ensure payroll compliance? 

Often, companies make payroll compliance mistakes, which puts them at risk of incurring penalties and fines or facing legal action for negligence. It can be a nightmare for the business if not managed well.

Implementing a sound payroll compliance system is one of the best methods to ensure payroll compliance. But before that, consideration of the following mistakes/violations is necessary.

Common Payroll Compliance Mistakes

Here is a list of all the basic yet major payroll compliance mistakes that businesses make, hinting that they need an expert.

  1. Wrong Details and Classification of Employees

    Payroll relies on correct information for every full-time and part-time entity and vendor of the company. Classifying employees into the wrong categories can create big gaps in payroll compliance. Considering that every category has various benefits and taxes levied on its profiles, a lapse due to either manually recording the data or carelessness can cause trouble in payroll compliance.

  2. Ignoring Holidays and Time-Offs

    Payroll compliance relies on proper documentation of employees’ working days in a month. Businesses sometimes ignore taking holidays and time-offs into account. This leads to overpayment or underpayment to these employees. Conflicts can occur if no biometric system or timesheet formalities are maintained on the office premise. It impacts the payroll documentation and payments to the employees at the end of each month.

  3. Avoiding Maintenance of Payroll Records

    Payroll records must be maintained for long durations, even after the employee leaves the organisation. Understandably, keeping compliant with the ever -changing labour laws requires proper maintenance of payroll records. 

    Yet, at times, businesses don’t pay undivided attention to this detail which hampers their say at the time of audits or complaints. The right details of employees, including their tenure, pay structure, etc., must be provided to the authorities as and when required. Not maintaining them certainly puts the business at risk of fines and penalties, not to mention the company’s reputation.

  4. Miscalculating Overtime and Deductions

    Overtimes are a tricky affair to handle. Businesses often do not have a proper tracking system to log the extra hours employees spend in the office. The same goes for deductions. Any setback or wrong calculation can lead to employee complaints, which can be escalated and highlighted during audits.

  5. Neglecting Proper Taxation

    Taxation is an essential facet of any business. When it comes to maintaining the payroll of employees, taxation becomes a rather sophisticated aspect of running a business. The common mistake that businesses make is to deduct tax erroneously, not deducting the tax, or not filing the tax by the due date. This can result in heavy penalties due to delays and misses.

  6. Paying Outside of Payroll

    Payroll structures and annexures are made to maintain the legal records and rights of the employees. At times companies pay their employees out of their payroll. These transactions can be branched under benefits, bonuses, etc.

    With these, however, organisations risk subjecting illegal payments outside of payroll, which could result in grave consequences (even jail time). Therefore, every transaction or payment to any employee category needs to be as per the payroll or terms decided by both parties, the labour law act, relevant rules and policies set by the government, and proper documentation.

  7. Delaying Due Submissions

    If there is no dedicated source in the business to oversee the ESI or EPF section of employees, then delays happen frequently. Every business is bound to pay a fixed amount in the PF account (conditions applied) of every employee before a dedicated deadline. Missing these deadlines can lead to hefty penalties and the issuance of notice from the EPFO department.

How to Avoid These Mistakes

These mistakes can be avoided by following a proper payroll management strategy. It must address a host of aspects from maintaining a real-time repository of acts & requirements, facilitating seamless compliance document management, advocating for compliance reminders, and notifications, keeping tabs with audits and inspections, etc.

Payroll management is complex, and to avoid the hustle, businesses need experts. At Core Integra, we can help in smoothing out the payroll compliance process for your organisation.

So, if you want to avoid the mistakes altogether, contact us now. We will be glad to help you out.