Payroll administration is an important task in any company. Whether it’s handled by an accounting professional, a dedicated payroll specialist, outsourced to a third party, or delegated to HR, payroll management is vital to upholding our end of the bargain we make with our employees — they perform work, we remunerate them in kind. Employees expect timely and accurate compensation, and any errors can lead to frustration.

Payroll deductions are an area that can result in costly consequences for both the company and its employees. Beyond the required payroll taxes, social security and unemployment, there may be benefit contributions, garnishments, 401k, and other legally mandated items. 

Unfortunately, payroll is also susceptible to workplace fraud. Bad actors with unchecked payroll power have been known to give themselves unauthorized raises, create factitious employees, and divert funds into personal accounts or those of friends. To mitigate these risks, implementing checks and balances in your payroll processes is essential.

  1. Accuracy and Verification: Regularly review benefit statements to confirm they match actual contributions. Verify that your active payroll roster only includes current employees. Ensure that departed employees are promptly removed from the payroll system to prevent erroneous payments to employees who are no longer with the organization.
  2. Deductions and Taxes: Double-check that deductions and taxes are correctly calculated and withheld. Accurate reporting to social security and compliance with tax regulations, such as Modified Business Tax, is essential to avoid legal issues.
  3. Departmental Classification: Ensure that wages are correctly categorized for workers’ compensation premium calculations.
  4. Overtime and Wage Payments: Confirm that overtime is calculated and paid correctly to employees who qualify. Any discrepancies can be costly.

Maintaining an effective payroll process involves a considerable amount of work and diligence.  Without proper checks and balances, you risk being out of compliance, inadvertently breaking the law, not paying people correctly, or having someone steal from you.

Regular audits are crucial. Consider conducting audits annually, with more frequent reviews if your organization is larger or operates in more than one state. Additionally, your company should have a clear policy and procedure that allow multiple individuals to oversee and validate payroll processes.  This way, errors can be caught and fixed promptly and the likelihood of fraud is reduced.

If you are concerned about the state of your payroll department and want to ensure efficiency and compliance, NAE is here to help.  Our team of experienced HR professionals can conduct a thorough audit and collaborate with your team to create a strong set of policies and procedures.  Let us help you manage this vital function efficiently, and in compliance with the law.