Dealing with payroll is part and parcel of a businesses’ operation process. Just as every employee needs their pay check, every business, whether small or big, will have to run payroll to pay its employees. Yet payroll mistakes are costing businesses thousands of dollars each year to rectify.
Payroll plays a significant role in staff retention and workforce morale. The signs of a good payroll management system include prompt and accurate payments, compliance with local regulations and the maintenance of proper records.
Here at JustLogin, while we work with thousands of businesses like yourself, often, the same questions pop up. So we’ve collated five common payroll mistakes to avoid to sharewith you.
Inaccurate Employee Details
For accurate payroll processing, it is necessary to keep an updated employee database that has all the relevant information. This includes employees’ age, nationality, date of commencement, immigration status (wherever applicable), bank account number (for salary crediting), etc. Often, companies do not have the habit of conducting periodic health checks on staff data. Any un-updated changes in bank account numbers or immigration status could take time to rectify and cause undue stress to employees. Constantly remind employees to update any changes in their employee details and be notified automatically when these changes occur. This is especially important in the event when for example, an Employment Pass holder secures a Permanent Residency status in Singapore. Such a change in immigration status will necessitate a change in the employee’s subsequent Central Provident Fund (CPF) deductions and contributions. If not done properly, hefty penalties could be unwittingly incurred by the organization. Similarly, salaries for hourly-rated employees and various staff benefits need to be clearly captured in the staff database as inaccuracies often lead to costly payroll mistakes. Thus, every organisation should run periodic audit of employees’ details.
Non-Compliance to Local Regulations
In Singapore’s context, apart from CPF contributions, did you know that employers also have several other statutory obligations relating to payroll? Employers are required to make Skills Development Levy (SDL) contributions for all employees, including all local and foreign, casual, part-time and temporary employees. The SDL contribution rate is of 25% of an employee’s gross monthly remuneration up to the first $4,500 or $2, whichever is higher. This is a separate levy from other payments such as the CPF contributions or Foreign Worker Levy. Additionally, in effect since 2016, employers are required to issue itemized payslips to all their employees who are covered under the Employment Act. Failure to comply will attract penalties. As these local regulations do change from time to time, some companies may tend to overlook them, especially when resources are stretched. This can result in heavy penalties being imposed. Thus, businesses either need to allocate resources to stay up-to-date about ensuring compliance or invest in a payroll software that helps them in this area.
Inconsistent Pay-run Schedule
How often you pay your employees can have a substantial impact on your operations and cashflow. And it also impacts your employees. Having a consistent salary disbursement schedule is essential to keep up the morale of the workforce. Any delayed payment can inadvertently affect employees’ expense plans or GIRO arrangements. Scheduled CPF payments is also critical to avoid non-compliance penalties. However, for businesses with limited resources may often get so consumed by day-to-day operations that they struggle to meet the deadlines to process payroll on time. This struggle may also lead to calculation errors that detrimentally impact the businesses’ accounts. Reduce this risk by considering the use of a payroll processing software that can help you to stay on schedule.
It is understandable that smaller-sized companies with lesser employees may not invest in a payroll software or outsource payroll management in a bid to save cost. However, the human element involved in tabulating all the various pay elements may be easily miscalculated. Such mistakes can be rather costly and may in fact be counter-productive for the company’s resources instead. An example where errors are commonly found is in the computation of CPF contributions, especially for employees who are on reservice for National Service, part-timers or those on probation. Likewise, errors are also common when computing employees’ salary disbursement when factoring in their different leave types, benefits and expense claims. Apart from these computation errors, the non-standardization of rounding procedures is also often a source of error. Nonetheless, these common payroll mistakes can be prevented with the help of a suitable payroll software and/or the specialized expertise of outsources payroll service providers.
Lack of Proper Payroll Records
Often overlooked, but the failure to maintain proper payroll records is a very prevalent mistake among small and medium enterprises (SMEs). This can be a significant issue when there is a dispute regarding payments made. It is a company’s obligation to produce records and provide proper forms in case of any enquiries from the government regulators. This is also to ensure that any discrepancies found can be rectified early and easily. In Singapore, businesses need to submit their tax submission forms to the Inland Revenue Authority of Singapore (IRAS) annually, before the 1st of March each year. Companies that do not pay appropriate attention to proper payroll management will eventually pay a hefty price for not tracking and keeping adequate records. Investing in a payroll software that helps you generate the appropriate records at your fingertips can help you to overcome being caught in such a situation. Alternatively, your outsourced payroll service provider will be required to maintain and produce the records upon request, as part of contractual obligations.
Having highlighted these common payroll mistakes to avoid, it pays to take a second look into your pay run process and ensure you have all grounds covered before proceeding.