Payroll Mistakes

Avoid these 5 Common Payroll Mistakes That Can Disrupt Your Business

The payroll is one of the most important, though under-appreciated, functions within an organization. Salary fees make up a large percent of your business expenses. When done correctly, the salary you offer can satisfy your employees and keep them motivated. At the same time, it can keep your company out of legal trouble from the Department of Labor and Employment (DOLE). 


A good and well-executed payroll system will make your business flow seamlessly. It can also make financial statement preparation a breeze; however, when done erroneously, the whole company is affected negatively with lawsuits and losses. Like with everything else, payroll mistakes can be avoided. All you need is proper planning, the right knowledge, and the necessary tools. Here are the five most common payroll mistakes that you may be glossing over or unaware of and how to best abstain from committing them.

1. Improperly Classifying the Employees

Employees are protected by the Labor Code and are eligible for certain government and company benefits like Pag-Ibig, Philhealth, and SSS. However, independent contractors, freelancers, and non-registered workers (temps or contractors) are not afforded the same bulwarks and protection. Any misclassification of an employee may result in labor warfare as they may be denied rights, benefits, and wages. This will also affect their tax returns as well as the financial statements of your business. 


Furthermore, misclassifying your employees can land you in trouble. It has grave effects that can land you in the Labor Courts. To avoid making this error, constantly monitor the classification of employees. Ensure that they are given the proper benefits and wages, such as night differential, overtime pay, leaves, and the like.

2. Wrong Calculation of Wages

Another common error is something as simple as a few missed hours. When creating your payroll, all hours, overtime, commission, and deductions should be included. Miscalculation of wages can result in you overpaying or underpaying your staff. Non-compliance with minimum wage and overtime wage laws can also burden you with hefty penalties. 


To avoid this, you must implement a proper and effective time tracking system for your company. Keep proper tabs on hours spent in the office by every employee. You may invest in an automated time tracking system to make the process efficient and accurate. Remember, if you don’t pay your employees the right wages, it can lead to under performance and dissatisfaction. Ultimately, this can adversely impact their productivity while influencing your company’s profitability. 

3. Missing Payment Cut Off

Your staff rely on your company to secure and deliver their wages on time. The fact of the matter is your employees have families to feed and cannot do so unless you release their salary. Failure to pay them on time not only reflects badly on you, but it also inhibits their ability to fund their own needs and can damage their trust in your company. This will result in a lack of motivation, so they may feel reluctant to do their tasks. It may even result in absences because no one likes to work for free. Not paying employees on time is demoralizing.   


In addition, payroll taxes have deadlines and must be met to avoid penalties and legal consequences. In order to meet deadlines on time, keep a calendar system that tracks all payment and wage deadlines. Also, construct a timeline that allows you to see how much funds you have to allocate for the payroll. It helps if you set a schedule, whether weekly or bi-weekly. Most of all, make a pact to stick with timely salary payments because it is your obligation as the employer.

4. Wrongful Documentation and Record-Keeping

If your company fails to properly document and maintain your payroll records, you may be requested by the Bureau of Internal Revenue to conduct an audit, a costly and time-consuming process. Make sure you keep payroll records that span at least four years and include the needed forms, pay stubs, time sheets, etc. 


When running a business, organizing your files and records is the key to blissful operations. Keep these files organized in labeled folders for easy access. As an entrepreneur, you need to prepare for any eventualities.

5. Not Being Up to Date with New Circulars

The world changes every single day, and so do payroll, tax, and labor laws. Though not on a daily basis, these things change quite frequently throughout the years depending on the economy, global and national politics, human resource supply and demand, and government admin transitions. It is important to be up to date on all new laws, ordinances, and stipulations to avoid committing an error on your payroll and payroll tax. Moreover, knowledge of these new laws can save you from a labor case.

If you need help with your payroll management, get in touch with us. We’d love to help you establish clear payroll guidelines for your company. Our team offers a free 30-minute consultation, so do give us a call.