Even minor payroll errors can have big consequences, from legal penalties to loss of employee trust. Across Europe, companies manage payroll in various ways. Some rely on their own systems, technologies and knowledge. Others prefer to outsource the payroll process in part or entirely. While one approach may be more effective than the other depending on which country you’re operating in, the most prevalent errors are often similar. Here are the 5 most common payroll mistakes and how to dodge them.
A frequent payroll error is the lack of complete and accurate employee records. This can result in misclassification of employees, incorrect calculation of pay, overtime and benefits, and errors in tax withholding. To avoid this, it’s crucial to establish a well-organised system for maintaining employee records, including accurate classification of employees, work hours and benefits.
A core HR solution a valuable tool to keep your records up to par, as it provides a centralised repository for employee data and automates many payroll-related tasks. According to the Payroll Proficiency Index, this rings especially true in countries such as Spain, Norway and Poland, where technology is seen as a major driver of payroll efficiency.
Payroll calculations involve a broad set of data. Consequently, the risk of miscalculating pay – and accidentally over- or underpaying employees – is always present, especially if there’s a lot of manual data entry involved. What’s more, the various employee payday and tax deadlines only add another stress factor to the list of risks and potential errors.
Automating payroll processes help eliminate the risk of human error and ensure timely and accurate payments. In addition, you can call in the expertise of a payroll partner. As evidenced by the Payroll Proficiency Index, this partnership approach is common practice in countries like Belgium, Norway and Spain. Companies there consider outsourcing an important boost for their payroll proficiency.
Employers are responsible for reporting all forms of taxable employee compensation, including bonuses, stock options and other non-wage benefits. Failure to do so can result in legal penalties and harm employee morale. Hence the importance of having a comprehensive understanding of taxable benefits and making sure that all forms of compensation are properly reported.
Technology – such as an integrated core HR solution or software systems for workforce management, talent management and payroll management – helps ensure that all taxable compensation is reported accurately and on time. Or how about calling in the tax knowledge of an external partner? It’s well worth considering, especially in countries where rewards are seen as an important hindering factor in boosting payroll proficiency. Think of Denmark, Belgium and France, as shown in the Payroll Proficiency Index.
Payroll data is a valuable target for cybercriminals, and data breaches can have serious consequences. These include the loss of sensitive employee information, legal penalties, and reputational damage. To reduce this risk, you’ll need to implement robust cybersecurity measures, such as encryption, firewalls, and two-factor authentication. Regularly monitoring and updating these measures is also critical to keep up with the ever-evolving threat landscape.
Does avoiding data breaches sound like an expert’s job to you? Then consider working with cloud-based technologies or outsourcing your payroll management to external partners. This could be particularly interesting in countries such as Denmark, France and Belgium. There, managing payroll data is already complex in itself due to workforce complexity hindering payroll proficiency. Add data breaches to the mix, and you could end up with a perfect storm.
Payroll legislation is constantly changing, so companies and organisations of all shapes and sizes would do well to keep track of the latest regulations. If not, you could end up making incorrect payroll calculations or being unable to provide accurate information to employees regarding their pay checks and tax deductions. To avoid such situations, it’s advisable to keep your finger on the pulse of payroll legislation by regularly attending training and workshops, subscribing to relevant newsletters and publications or working with external experts.
Want complete peace of mind? The most proficient approach may well be to rely on outsourcing and have a payroll partner stay up to date with legislation for you. This is no unnecessary luxury in countries with complex and dynamic labour and payroll laws – such as Germany, Austria, Switzerland, Belgium and France.
There’s no denying it: the more proficient you are at managing your payroll, the more you’ll be able to lower the risk for potential errors. Want to find out what drives payroll proficiency the most in yours and other countries?
Contrary to what some think, payroll outsourcing is not a take-it-or-leave-it concept. You decide which tasks you’d rather lay in the hands of a third party and which ones you keep in-house. Therefore, every outsourcing project starts by determining the scope. To help you with that exercise, we’ve listed some pro tips.
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