What To Do If You Discover a Payroll Error

Even with strong systems in place, payroll mistakes can still happen, especially since many tasks, like updating pay rates, reviewing timecards, and calculating bonuses, rely on human input. While no system is foolproof, you can avoid most issues by regularly auditing your payroll practices.

In this article, we’ll outline how to fix payroll errors if they occur and a few tips to help you reduce your risk of payroll mistakes in the future.

Fixing a Payroll Error

When an employee raises a pay concern, your response is key in resolving the issue and maintaining trust. Delaying action or ignoring the issue can lead to legal risks like fines, penalties, and attorney’s fees.

Approach each concern thoughtfully, respond thoroughly, and avoid assumptions. If the employee isn’t satisfied with your response, they may escalate by filing a lawsuit or administrative wage claim with the Department of Labor or a state or local agency. Here are the primary steps to guide you through the process of fixing a payroll error:

When an employee raises a pay concern, start by documenting their report—note the date and what was said—and let the employee know the steps you’ll take to look into the issue.

Investigate the claim as soon as possible. If the concern is valid, fix it right away. If not, communicate clearly and empathetically to explain the situation and provide a resolution. Consult an employment attorney if you’re unsure how to assess the claim or the legal requirements.

If you discover an underpayment, correct it promptly. Instead of reversing a previous paycheck, issue a separate back pay amount that notes the reason for the adjustment.

Keep detailed records of your investigation, including all actions taken to correct payroll errors. An employment attorney can also guide you on best practices for documenting this process.

Payroll issues can be sensitive, and employees may feel personally slighted by payroll mistakes. It’s important to stay calm, take responsibility for delays, and focus on resolving the problem. Even if the employee's concern turns out to be mistaken, it provides an opportunity to demonstrate essential HR skills, such as empathy and emotional intelligence, that every small business owner should possess.

Equally important is avoiding retaliation against employees who raise wage concerns. Retaliation can include actions like firing, demoting, or reducing responsibilities. Federal and many state laws protect employees from retaliation, and such claims can result in costly consequences for your company—even if the original wage dispute is dismissed.

Reducing Your Risk of Payroll Errors

Preventing payroll mistakes requires reliable tools, a strong understanding of applicable wage laws, and clear internal policies. The following best practices can help lay the groundwork:

Use Payroll Software

One of the common payroll errors involves inaccurate time tracking for non-exempt employees. The right tools and proper training can make a difference in avoiding these mistakes. Consider investing in payroll software with time and attendance integration to have an electronic record of the hours logged. Here’s how else you can strengthen this process:

Train Employees on Timing: Ensure non-exempt employees thoroughly understand how to log their time correctly within the software and follow your internal procedures for submitting, approving, and correcting entries.

Emphasize Recording All Work Time: This includes time spent working during unpaid meal breaks or outside regular hours, no matter how minor it seems.

Train Managers for Reinforcement: Managers should model best practices and avoid pressuring employees to underreport hours, even indirectly.

Familiarize Yourself With Wage Laws and Terms

Employees must be paid accurately and on time, regardless of their exemption status. However, the definition of “on time” varies depending on state and local laws and the payment type.

For example, regular payroll schedules are often straightforward, but many states have specific rules regarding final pay that may differ from those payroll timelines. So, knowing the particular payment timing requirements for each employee’s location is essential. Getting familiar with these additional terms can help you detect and prevent common payroll errors:

Exempt vs. Non-exempt: Misclassifying employees is a common wage issue, especially when non-exempt workers are treated as exempt and miss out on overtime. Under the Fair Labor Standards Act (FLSA) and state laws, employees are generally non-exempt unless they meet the legal criteria, which internal agreements can’t change.

Time Tracking Requirements: While the FLSA offers flexibility in tracking time, it still mandates the maintenance of accurate records. Using software that integrates time tracking with payroll can help you meet these requirements and minimize errors.

Wage Timing Laws: Many states have clear rules on how often employees must be paid. These rules can also differ for final paychecks or commission payments, so it’s important to understand the specific guidelines for each scenario.

Additional Pay Considerations: Non-exempt employees may be entitled to compensation for activities such as travel time or short rest breaks. These rules can exist at federal and state levels, so double-check the requirements for your workforce.

Include Wage Policies in Your Employee Handbook

Your employee handbook should clearly outline your company’s pay policies, including wages, schedules, overtime, and other compensation details. Incorporate a step in the onboarding process where employees review and sign an acknowledgment confirming their understanding of the policies. Regular legal reviews can help keep your policies compliant with changing federal, state, and local laws, reducing the risk of payroll errors.

How Justworks Can Help You Reduce Payroll Mistakes

Avoiding payroll mistakes requires the right combination of tools, processes, and support. Justworks Time Tracking integrates seamlessly with payroll to help you track hours accurately, document all logged time, and stay compliant with features like custom overtime alerts and automated meal and rest break reminders.