What Happens If You Make A Mistake Running Payroll — and How Can You Fix It?

Everyone makes mistakes; it’s just a simple fact of life. However, when it comes to payroll, errors can be costly – in more ways than one.

Did you know that companies, on average, make 15 payroll mistakes per period and that each one costs an average of $291 to be remedied? To make matters worse, a simple payroll error, whether a miscalculation, an oversight, or a technical glitch, can ruin an employee’s day and even an entire month, lowering their morale and productivity. If it happens often enough, they may even decide to leave the company.

Fortunately, most payroll mistakes can be avoided or fixed by being properly educated and trained on the subject, being careful when working, and using the right tools. Below, we talk about the potential consequences of common (and not-so-common) payroll errors and how you can quickly and effectively rectify them when they do happen.

Common Payroll Errors and How They Can Damage Your Business

The repercussions of various payroll mistakes can be, well, quite varying.

For example, errors in tax calculations or reporting can result in penalties, fines, and even audits from tax authorities. In addition to straining your finances, this can also damage your reputation. On the other hand, paycheck errors can lead to employee dissatisfaction and decreased morale. This, in turn, can lower employee productivity and even lead to legal disputes.

So, what are some common payroll mistakes?

  • Misclassifying employees,
  • Inputting incorrect data,
  • Failing to account for overtime,
  • Overlooking tax withholdings,
  • Missing payroll deadlines.

All of these errors stem from either human error, inadequate training, or using outdated payroll systems. That’s it. Thankfully, they’re also relatively easy to fix (depending on the error) if you spot them on time.

Preventing and Fixing Common Payroll Mistakes

The best way to fix a mistake is to avoid it in the first place. You can prevent payroll errors by doing the following things:

  • Provide Education and Training: The first thing you can do to prevent payroll errors is to provide your payroll staff with comprehensive training on proper procedures, compliance requirements, and software usage.
  • Invest in Straightforward Payroll Software: Speaking of software usage, make sure you invest in robust but easy-to-use software for small business payroll. Modern payroll software solutions automate many aspects of payroll processing, so they reduce the likelihood of human error while streamlining your payroll operations.
  • Stay Updated on Laws and Regulations: You and your payroll staff should also stay informed about changes in tax laws and regulations to ensure you’re tax compliant. This, in turn, will minimize the risk of costly penalties and audits.

Okay, but what happens when you do make a mistake? Firstly, don’t panic – payroll errors are quite common, and even the most conscientious person who takes their time and double-checks everything can make mistakes. The next thing you want to do is take action the moment you spot the error. The sooner you notice it, the easier it will be to mitigate the impact. So, in simple steps, here is what you can do.

  • Identify the Mistake: Start by reviewing payroll records, employee timesheets, and other relevant documentation to identify the source and nature of the error. Understanding the root cause – which can range from misclassifying an employee to not paying for overtime all the way to not remitting payroll taxes – is essential for properly rectifying the mistake.
  • Calculate the Correct Amount: Once you’ve found the error, calculate the accurate amount owned or withheld. During this step, make sure you double-check calculations and cross-reference data to ensure everything is accurate. This can also help minimize the risk of error recurrence.
  • Adjust Future Payments: If the error was a result of underpayment or overpayment to employees, make sure you adjust future paychecks accordingly to correct the discrepancy. Remember, promptly resolving payroll errors shows a commitment to accountability and ensures that employees feel valued and respected within the organization, which in turn can boost employee engagement.
  • Issue Corrections and Documentation: Then, generate corrected payroll reports, statements, and documentation so it reflects the accurate figures and adjustments made to rectify the error. Also, make sure you maintain detailed records of the payroll error, including the date, nature of the mistake, and corrective actions taken.

Seek Professional Help if Needed: Finally, if you encounter some particularly complex situations or you’re simply not confident in your ability to solve the issue properly, don’t hesitate to seek professional assistance. Accountants, tax advisors, or payroll specialists can offer you guidance and ensure compliance with legal and regulatory standards.

Post a Comment


This blog accepts forms of cash advertisements, sponsorship, paid insertions or other forms of compensations. While we may receive commissions when you click on some of our links and make purchases, this does not impact our reviews, comparisons, opinions or thought-leadership perspectives. Please note we also welcome contributed content and there may be links that are affiliate oriented within these contributions, as well. Retail Minded always aims to deliver trusted news, education and support for our readers.

Read More about our Privacy Policies


Retail Minded on Entrepreneur
Retail Minded on Fiverr
Retail Minded on Forbes
Retail Minded on Gift Shop
Retail Minded on LRG
Retail Minded on Museum and More
Retail Minded on NBC
Retail Minded on Party Paper
Retail Minded on today