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Four common payroll pitfalls to avoid

By Gerhard Hartman, Vice President, Medium Business, Sage Africa & Middle East

Gerhard Hartman, Vice President, Medium Business, Sage Africa & Middle East

Payroll management sounds simple in theory. However, it’s surprisingly easy for a growing business to make payroll-related mistakes, especially if it doesn’t have robust processes and systems in place. In some cases, an error can have serious consequences for a business, ranging from damaging employee morale to losses from fraud.

Here are a few of the most common errors businesses make in managing their payrolls:

1. Failing to automate

Putting this one right on top of the list makes sense because poor systems and controls are the root cause of most of the other payroll mistakes listed below. If you don’t have an automated system in place, you can easily make errors in calculating employee salaries and deductions, and in recording employee information and transactional data.

Failing to automate also means the payroll team spends most of its time on compliance and admin issues, when it should ideally be focusing on helping the business understand payroll costs, identify trends, enable better employee experiences, and provide strategic advice to finance and management teams.

2. Not putting checks and balances in place

Payroll fraud is a major risk for businesses today and is often discovered by accident, only after the company has lost a vast amount of money. Many small- and medium-sized businesses are vulnerable to payroll fraud because they don’t put appropriate checks in place. For example, they often give one accountant or payroll manager complete access to the payroll system and company bank account.

The simplest way to prevent most incidents of payroll fraud is to enforce segregation of duties in the payroll department. Employees calculating pay rates and accumulated hours for payroll should ideally not be the same people who process the payments. Different people should have responsibility for capturing payroll data and for managing access to the system as well as adding and removing employees from the payroll. Yet another person could be tasked with checking whether the numbers add up.

3. Poor control over leave days

It can be all too easy to lose track of leave days if an employee takes leave without proper authorisation. The likely outcomes of such irregularities can be that an employee benefits from extra paid leave or loses leave days due to errors in data capture, or that their available leave payment may be inaccurately calculated when they resign from the company. Other issues may include two critical team members applying for and having their leave approved at the same time, when at least one should be in the office.

An automated payroll system allows you to easily process leave applications. It enables you to manage leave administration, enforce company-specific leave policies and ensure the records are accurate. You can also introduce the employee self-service mechanism to streamline leave applications and approvals for employees and managers.

4. Travel allowance pitfalls

Reimbursements and allowances for employee business travel are a minefield if you are not prepared. A travel allowance is a regular monthly amount the employer pays an employee to compensate them for travel in either a privately-owned vehicle or for business-related air travel.

It is better to persuade team members to opt for reimbursements rather than travel allowances simply because they are easier to understand. Once again, an automated payroll solution will do the calculations for you and help capture the right data using the correct categorisation.

Closing words

There is no reason today for payroll to be a headache or a distraction. Suitable tools can help you take care of most of the red tape so you can focus on vital areas of the business, such as growth, strategy and talent development.