Costly Employee Benefits & Payroll Mistakes You Might Be Making September 27, 2022

Costly Employee Benefits & Payroll Mistakes You Might Be Making

Any payroll mistakes can be quite costly to employers — in the form of extra benefits, complaints, lawsuits, government-assessed fines and penalties, and attorney fees to name a few. Don’t learn the hard way what these mistakes are. Here are some of the most common employee benefits and payroll mistakes:

Not depositing employee contributions or matching contributions into qualified retirement on a timely basis
Employers sometimes wait too long to deposit salary deferrals into a qualified retirement plan. If your qualified retirement plan provides for matching and profit-sharing contributions, it is important to make these contributions on time as well. If deposits and contributions are not timely made, the Department of Labor (DOL) and Internal Revenue Service (IRS) may levy fines, penalties, and retroactive earnings for late contributions.
Using the wrong definition of compensation when computing retirement plan contributions

Employees are entitled to receive and make contributions based on the definition of compensation set forth in the plan document, up to applicable limits. Employers sometimes fail to compute profit-sharing contributions based on certain types of compensation (e.g., bonus payments, commissions and service awards), contrary to the plan language. Failure to comply with the terms of the plan can result in disqualification of the plan. To avoid plan disqualification, employers follow EPCRS correction principles and end up making the extra profit-sharing contributions, plus lost earnings, to make the employee plan accounts whole.

Independent contractor / temporary employee issues
Some employers make the mistake of including independent contractors in health plan coverage and/or excluding temporary employees from benefit plan coverage. If an employer allows independent contractors to participate in its health plan, its health plan is technically a “multiple employer” plan, and specific IRS forms needs to be filed annually. Failure to do so can cause the DOL to levy penalties. On the other hand, If the employer has wrongfully excluded temporary from its benefit plans, those employees can seek retroactive reinstatement to the employer’s benefit plans, potentially causing large damages to the employer.
Misclassifying an individual as an independent contractor
Another costly independent contractor mistake is the misclassification of individuals as independent contractors when they do not qualify under the law as an independent contractor for unemployment and worker’s compensation purposes. By making such a mistake, employers could owe thousands of dollars in back premiums for worker’s compensation insurance, as well as premiums for unemployment insurance. Even worse, the employer could be responsible for actual medical costs for an individual not properly covered under your worker’s compensation policy. The employer may also owe income taxes and social security taxes.
Recalculating overtime when paying performance-based bonuses
Employers often forget to recalculate overtime previously paid and make additional overtime payments when paying performance-based bonuses over multiple pay periods. Generally, if a wage claim is brought, an employer could owe not only back pay, but interest, penalties and attorney fees. Check with your legal counsel to make sure you know whether the bonuses you pay qualify for recalculation of overtime.
Failing to clearly define the commissions are payable
Many employers make the mistake of not having a written policy defining when commissions are due to employees. State laws differ, but if an employer does not have an appropriate policy, an employee can leave or be fired and still be due thousands of dollars in commission payments. Make sure that your commission policy is in writing and clearly defines when employees have earned commissions and how they are handled upon termination.
Payroll and benefit errors can be extremely costly — financially and legally. Harmony Roze streamlines and automates customizable compensation cycles that will help eliminate these common errors. Book a demo with us today to enhance your workforce efficiency.
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