3 challenges businesses face with their payroll department

Payroll departments perform the same functions they always have, since the first payroll department cut its first check. Now, factors like state mandates and federal regulations complicate those functions. But at the end of the day, it’s still the payroll team’s role to ensure employees are paid. Today’s payroll team members also protect the company from penalties by making sure it follows the letter of the law.

The three challenges included below are not new to payroll departments, but there are complex and constantly changing compliance and administration issues surrounding them they must be aware of.

1. Calculating Overtime

One of the biggest challenges payroll teams face is calculating overtime. However, the rules of the Fair Labor Standards Act (FLSA) of 1938 have barely changed since they were signed into law. Calculating overtime requires a series of calculations including regular rate of pay, overtime rate of pay and the amount of overtime pay due.

These principles have governed since 1938: Overtime hours are all hours worked above regular time; overtime is calculated separately for each week without average; and, only actual hours of work may be counted. However, the “actual hours”principle has become a little tricky in recent years. Thanks to the mobile office, more people are working from home, which makes it more difficult to report and calculate overtime hours.

Calculating regular hours worked and overtime hours at the appropriate rates are one of the biggest errors auditors look for. Miscalculation of overtime is common problem. It’s important to be sure strong ethics practices are in place for both the payroll team and the employees they compensate.

2. Deducting from paychecks

Taxes have never been simple, and paying taxes in the form of payroll deductions is no exception. There are a few challenges to reporting and deducting taxes appropriately for today’s payroll department. Some of those include multi-state taxation, anti-wage theft laws and avoiding accidental over-payments, all of which may be enforced differently in each state.

States differ in the mandates they have in place for correcting payroll deduction mistakes, too. Some mandates put time limits as to how far back a mistake can be made and still be allowed correction. Some state mandates say that if you paid the incorrect amount, then it belongs to the employee and nothing can be done.

The payroll department also sees its share of employee grievances based on deductions. The department bears the burden of explaining why deductions may be more than expected due to the law, safeguarding against potential fraud attempts, protecting against identity theft and standing firm on what is considered taxable income.

3. Paying employees

It’s important to remember that no one payment method is going to make every single employee happy. The payroll team must be flexible in how they pay employees in a way that is acceptable to them, as long as it complies with the law and company policies.

Employees have the right to decide if they will be paid by direct deposit or by paper check. They can also choose how much is deducted from their pay according to how they file their taxes.

Because taxes, deductions and gifts from the company are all complicated pieces of an employee’s salary, it’s important they understand how they factor into take-home pay. Taking time to explain what is included in the employee’s W2 will help them understand that payroll is complying with state and federal laws, not keeping them from what they’re owed as an employee.

It’s important to continuously educate yourself on the state and federal laws and stay up-to-date with changes in the law. Take webinars, go to workshops—even seasoned professionals benefit from taking advantage of educational opportunities.   Outsource your payroll to professionals who know the law and have obtained certifications like Certified Payroll Professional (CPP) and Fundamental Payroll Certification (FPC) .

Because these main functions of payroll are constant, the key to staying compliant while performing them is education and expertise.  At PayDayPro, we continually stay abreast of all law and regulation changes by committing to continuing education and certification.

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