5 Common Small Business Payroll Mistakes to Avoid

Payroll is one of those things that you just want to get right. Otherwise you’ll find yourself wasting a lot of time at some stage trying to unpick the mess. Choosing the right payroll system for your business will give you a big head start, but there are still some common pitfalls to be aware of.

I’m a big believer in learning from the mistakes of others, so here you go: 5 of the most common small business payroll mistakes to avoid.

Don’t Skip It

Get your payroll processes sorted out from day one. It’s common for new businesses to pay their first few pays in cash, then try to figure out the payroll calculations later. Trust me – that’s the hard way to work.

From day one try to get an automated system that will do your PAYE calculations, email out payslips, provide a payments batch for the bank and automate or outsource your tax filing. A stitch in time…

Don’t Fudge It

Payroll can be very simple for some companies. If you’ve only got salaried employees there is little variation from month to month. The temptation is to set up some direct debit payments then once every few months get the payroll records up to date.

Invariably something goes wrong with this approach. Leave taken from months ago is missed. A change in tax rates isn’t noticed and so net pays have been wrong for several months. Suddenly you’re wasting an hour or three unpicking the mistakes.

Using good payroll software, these simpler pays should take no more than a couple of minutes to run each month – make sure you set aside the time for this minor but important task. Did I mention a stitch in time…?

Don’t Wing It

NZ payroll rules are complex. A good payroll system will take a lot of the pain out of the process. But you still need an understanding of the principles underlying the calculations done by your payroll system.

Most payroll software providers will provide resources to answer most common payroll questions, often online in a searchable form, so that’s your first stop.

New Zealand At Work is the new name for what used to be the Department of Labour. Their website is a good source of information about the Holidays Act. The IRD website of course has tax related information.

If you’re still struggling to get to grips with payroll, consider getting a bookkeeper or accountant in to help out with the set-up.

Don’t Forget It

Small businesses often have changing work patterns for their employees. As the business grows, part time employees may add extra days, or change from a casual relationship to full time.

It’s crucial to record these changes as and when they happen in your payroll software. If not, leave accruals are likely to be wrong, and average rate calculations could well get skewed.

Note that some payroll systems (unlike FlexiTime) don’t record leave accruals on a pay by pay basis, so some manual adjustments may be required to accommodate changes.

Don’t Under Do It

It’s a legislative requirement that you keep a detailed employment record. Every time an employee takes leave, ensure that the days taken are tracked. For employees with irregular hours, ensure you capture the times worked on a day by day basis.

If you make changes to an employee’s set up, ensure you also add a note to document why the change was made. This comprehensive record is a lifeline if you find yourself in a dispute situation.