Payroll mistakes are costly for the company and cause distress and hardship in employees. However, as payroll errors may stem from various individuals across different departments, determining the specific responsibility can be challenging..
Still, to implement corrective measures and prevent future payroll errors, it is crucial to identify their sources.
Or is there someone who takes overall responsibility for payroll errors, whether or not their source is known?
Let’s find out.
The employer is responsible for payroll errors that happen at their company. Whoever on the staff makes the error will be acting on behalf of or on assignment by the employer. It is up to the employer to then decide how to deal with the employee directly responsible for the payroll error.
Whether the aggrieved party is the employee, the Kenya Revenue Authority, or other party the obligation for an accurate payroll that pays salaries and remits PAYE and other deductions on time and in the right amounts rests on the employer.
To illustrate this clearer, when an employee decides to recover wages lost to payroll errors, they sue the employer and not the payroll clerk responsible or their manager.
The same applies with unremitted PAYE deductions. The law makes it clear that it is the employer that acts as an agent and collects PAYE on behalf of the KRA.
Any fines for tax evasion or unremitted PAYE are therefore made against the employer and not the payroll clerk that forgot to deduct or remit the PAYE. The employer is liable for the payroll error and any accompanying fines and consequences.
With that said, within a company setting it may be necessary to apportion blame where the payroll was made. And in this case, it depends on the type of payroll error.
There are payroll errors where the payroll manager or department as a whole must take responsibility. This includes instances where new employees are not logged into the system and subsequently don’t get paid.
On the other hand, data entry mistakes must rest with the clerk who entered the data. Identifying such mistakes is important for pinpointing where, for example, training is failing or where staffing needed to be beefed up.
Certain payroll mistakes may warrant only verbal warnings, while others may be considered excusable..
For example, where the payroll software in use is outdated and is no longer fit for purpose. In that instance, the company must accept responsibility for the payroll error and invest in a new, more capable payroll system to prevent it happening again.
Some errors, however, are due to negligence where people are simply not exercising due care when entering payroll data. Such errors are inexcusable and it is essential to discipline the responsible employees as a corrective action.
Indeed, humans are prone to errors. In any workplace involving people, mistakes are inevitable, particularly in payroll due to its detail-oriented nature.
But that’s why people are encouraged to double-check their work. Not checking payroll for mistakes before running it is an act of negligence that you must weed out before it takes root.
Payroll processing professionals should question whether it is acceptable for someone to default on their mortgage and risk losing their home due to a payroll error.
Is it OK for one's family to go hungry or for their children to miss school over unpaid fees because someone in HR made an error that cut their expected salary?
The answer is a NO, such errors are inexcusable. So while an occasional error can be forgiven, making mistakes on every payroll is sloppy work that must be stamped out with deterrent punishment.
Payroll employees who persistently make errors should be moved on. Payroll should be for people who know what they are doing and who accept that their errors affect people’s livelihoods and can cost the company a lot of money and time to resolve.
There are payroll errors that are not a direct fault of payroll personnel. Of note are errors that are caused by use of incomplete or incorrect data and information.
For example, when an employee supplies the wrong bank account or when they forget to cloak in and their hours are resultantly not tracked and recorded. The employee concerned must take the income loss resulting from their inactions and negligence on the chin.
In cases like that the employer does not have to take any action. The loss of earnings will be a reminder to the employee that they have a role to play in maintaining payroll accuracy.
Determining the responsible department for payroll is crucial. While Human Resources (HR) commonly handles payroll, it may also fall under the finance department or exist as a separate entity.
But even where it falls under HR or finance, there are usually specific people who will be responsible for processing payroll. That’s because payroll is such a specialised line of work that requires practitioners to build relevant experience and skills.
However, if you consider that it is HR that hires people, determines how much each role earns in salaries and benefits, it makes sense that payroll must fall under HR.
So should HR be responsible for payroll?
Payroll discrepancies are inevitable, especially where there is some degree of manual data entry. And when they happen there should be a system and processes for correcting them.
But payroll mistakes must be picked up before they can be solved. And the best way to identify payroll errors is by conducting regular audits. Audits will also expose areas of weakness within your payroll system.
Most payroll mistakes can be rectified. What’s important to transparently communicate payroll mistakes to the affected employees when you identify them.
Ideally, you want to identify a payroll mistake before the affected employee does. If you are fortunate enough to do so, the manner in which you notify them can make all the difference in how they respond.
Payroll errors can cause a lot of disgruntlement that can damage the employer/employee relationship. It is only with sincere and clear communication that you can reassure the employee that the error was unintended and will not happen again.
An apology and commitment to be more careful and take the necessary steps to prevent such errors from happening can help convince the employee that this was indeed a mistake that you regret.
After communicating payroll errors to affected employees, you have to fix the errors. Additionally, steps must be taken to prevent the recurrence of mistakes.
Preventing payroll mistakes entails retraining staff, improving communication between payroll and other departments to streamline data transfer and sharing, and integrating your systems.
For seamless integration, it's assumed that you already have a payroll system in place. This process is more effective if your system is automated; however, if it currently operates manually, it's worth considering an investment in payroll software.
Choose payroll software that integrates with the other software you use in your business, particularly your time-tracking software. Integration removes the need for human intervention in payroll processing. Less human input means less human errors.
After processing payroll the next step is to disburse the salaries. You want that to be swift so employees can receive their salaries on time and using their preferred payment methods.
Intasend simplifies salary disbursements by putting all the tools you need in one easy-to-navigate digital wallet. From your dashboard, you can disburse salaries to up to 5,000 employees with one request.
We support direct bank transfers and disbursement to M-Pesa wallets and tills/Paybills. Our salary disbursements and business payments are run in the same PCI-Compliant environments we use to process card payments.