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The Payroll Puzzle: Avoiding Common Mistakes

Payroll is like one giant puzzle. The only difference is that the stakes riding on completing payroll correctly are significantly higher than your average jigsaw.

As an employer, your key objectives in terms of payroll are:

  1. To make sure your employees are paid the correct amount on time.
  2. To stay compliant with payroll legislation.

The ‘puzzle’ is complete when these objectives are achieved, however ensuring all the pieces are in place and accounted for presents its own unique challenges. Keep reading to learn how to avoid some of the common payroll mistakes…

Being proactive from the start.

Just as you would begin a jigsaw by sorting the edge pieces from the centre pieces, the key to payroll is to be organised right from the start. 

It is not uncommon for employees to provide incorrect information upon employment, which can lead to problematic consequences further down the line. As an employer, you can mitigate the risk of making this mistake by having sound verification systems in place for your payroll. Here’s a few helpful tips to follow when you’re setting up your employees:

  1. Sit down with your employees while they complete their IR330 form. This creates an opportunity for them to ask any questions they may have, and for you to validate their answers.
  2. Ask your employees to supply you with a bank statement. This reduces the chance of their pay bouncing due to an incorrect account number.
  3. Cross-check your employees’ employment agreement with the way their pay is set up in your payroll system. This ensures the employee’s leave entitlement, leave payment method, and pay rate are consistent with the signed agreement.

Checking, and double-checking.

Once you’ve validated this information, you’re in good stead to start paying your employees. However, there are a few more tricky pieces to the puzzle that you should look out for in order to stay compliant with IRD and avoid unwanted fines or large payouts. 

Here are some helpful tips to help you avoid some of the common slip ups…

  1. Check your Kiwisaver obligations. If an employee is enrolled in Kiwisaver, employers must make a minimum contribution of 3%. To determine your contribution rate for each employee, you should check their employment agreement.
  2. Ensure leave entitlements of casual employees are correct. Casual employees are entitled to accrue leave OR be paid 8% of gross earnings as holiday pay. They may also be entitled to sick leave depending on the number of hours worked and the duration of employment. 
  3. Set a reminder on your phone to check your account balance prior to running your payroll. Even if you have direct debit set up or you’re using a PAYE intermediary, it’s important to check you have the funds available to run your payroll otherwise you risk it being delayed. 
  4. Alter the pay date or frequency of payments permanently to align with your business’ cash flow. This follows on from the previous tip and is applicable if you consistently notice that your account balance is too low to keep up with the payroll you’re currently running.

Teamwork makes the dream work.

While there’s a lot that can go wrong with payroll, you’ll save yourself a lot of time, money and frustration if you’re aware of the common mistakes and have solid foundations in place to mitigate these.

It’s easier to solve the puzzle when the pieces are organised and even easier if you’ve got a team of people to help you. That’s why PAYE Intermediaries like Thankyou Payroll exist; to make your payroll journey as smooth as possible.

Thankyou Payroll’s Customer Lead, Alick Draper, delves further into the common payroll mistakes and how to avoid them.

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