How To Avoid Pay Miscalculations

by | Mar 4, 2024 | Blog

Employees can use a pay stub to confirm what was withheld from their gross pay so they can understand how the final net pay amount was arrived at. While no federal law requires pay stubs, most states do. Pay stubs should have these basic elements:

Amount per pay period.

  • Year-to-date pay.
  • Basic identifying information: name and address of the employer, name and address of the employee, and the employee’s Social Security number.
  • Pay period and total hours worked.
  • Gross wages, or the total amount earned for the pay period before taxes. If an employee worked 15 hours at $20 per hour, gross wages are $300. Pay stubs should note hours worked, what the pay rate is and any additional earnings or accrued time off.
  • Tax deductions, including federal tax withholding, state tax withholding, unemployment taxes, Social Security tax and Medicare withholding.
  • Employee benefits deductions, including things like health insurance, health savings accounts, life insurance payments and retirement contributions.
  • Voluntary deductions, which include the amount an employee chooses to withhold monthly and may include a regular charitable contribution.
  • Involuntary deductions such as wage garnishments, past taxes owed and court-ordered child support payments.
  • Net pay, the amount of money employees take home after all deductions are made.

If you miscalculate, the withholding amounts for taxes may include errors that may cost you penalties. Also, take care to pay taxes to the correct agency. Once you enter all the relevant information, the pay stub tool creates a pay stub for you. Many professional employer organization services take over the payroll work, providing employees with pay stubs.

Transparency works for everyone

Pay stubs offer employees transparency in how they’re getting paid, noting gross income, deductions and net income. Workers get year-to-date information.

Transparency helps you, too, so that you refrain from overpaying or underpaying employees, making erroneous retroactive payments, or missing the first paycheck for new hires. You don’t want to deduct the wrong amount for benefits or other payroll deductions. You also want to be sure you’re properly paying employees who are on disability or other leaves.

You may miscalculate or fail to pay overtime, which can result in the wrong pay, leading to the need to make corrections — which can span multiple tax years. Here’s how overtime errors may arise:

  • Calculating work during break times.
  • Including time traveling between worksites.
  • Counting participation in activities outside normal hours like training or team building or company parties.
  • Figuring in such additional taxable earnings as equity compensation, bonus awards, private medical insurance, employee rewards, company car or allowance.

Payroll systems are only as good as the quality of the data input and the skills of the people responsible for the payroll run. Keeping on top of tax codes is crucial to ensure employees are paid correctly and the right amount of tax is collected by the tax authority. Tax codes adjust with personal circumstances:

  • New starters.
  • Company benefits such as car or private medical insurance.
  • Furloughed employees.
  • Remote working.
  • Hybrid working.

Be on your guard for data entry mistakes, including mismatching employee name and Social Security number and/or poor logging of time and attendance. Those handling payroll are responsible for sending to appropriate recipients such payments as monies owed by court order or deducted from pay. Failure of funds to reach the recipient can constitute a breach.

Employee well-being is more than pay; it includes feeling in control and secure, knowing they can pay bills, deal with unexpected costs and provide for a healthy financial future, while being able to make choices that allow them to enjoy life.

When payroll errors happen, there’s a legal and moral responsibility to correct them rapidly. With the ever-changing nature of work and pay, along with the fast changes in technology, a regular payroll audit will provide recommendations on where to improve and how to avoid future issues.

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