Is Your Payroll Process Smooth? Common Payroll Mistakes and How to Avoid Them

Is Your Payroll Process Smooth? Common Payroll Mistakes and How to Avoid Them

A smooth and efficient payroll process often goes unnoticed in a business, but when the process doesn’t work it can be very noticeable and lead to unhappy employees. 

However, there are steps you can take to ensure that you are avoiding the common mistakes and your payroll process is running smoothly.  


Keep accurate employee records  

The first step to ensuring that your payroll process is smooth is to make sure you keep accurate and complete employee records from the start. Keeping accurate employee records is the foundation of a good system. 


This allows you to keep track of employees’ pay and entitlements which is your responsibility as an employer. 

You also need to make sure you keep documents relating to any changes that take place during an employee’s time of employment. Such as if their position or entitlements change, you may need these records to back-up any payroll decisions down the track.  


Some employee records need to be kept for up to 7 years such as: 


  • employee details including information about pay, leave and hours of work
  • reimbursements of work-related expenses
  • workers compensation insurance for each employee
  • superannuation contribution amounts


Not backing up payroll data 


A strong payroll data backup should be considered a must for any business. Without a payroll data backup, you could lose a lot of important information and it could cost your business greatly.  

It is recommended that you have a backup of your payroll data and store them in a location that’s safe and secure. You can also consider investing in a cloud-based payroll software to ensure your payroll data is safe and protected.

Not keeping up-to date with changes


A lot of payroll mistakes occur because of lack of information or incorrect information. This can be because there are constantly changes to payroll legislation and regulation as well as award and penalty rate requirements. 

This is why it is important that whoever is running payroll for your business is properly trained and keeps up to date with all these changes. You should also make sure that they are well trained in the specific payroll system you are using. 

They can keep up-to date by:


  • attending regular training, webinars, and seminars for professional development 
  • subscribing to email alerts from relevant bodies and organisations
  • keeping all software updated and
  • joining discussion groups with peers 

Miscalculating overtime and penalties 


It can seem like such an easy process to track employee hours, just enter the hours that were worked and then hand them in at the end of the week.  Unfortunately, it can often be more complicated than that when you have to take into account any overtime or penalty rates that may need to be applied. 

Timesheets and timecards are useful tools for business when it comes to tracking employees time worked. This information can then be used to make sure that any overtime and or penalty rates are correctly calculated such as any public holidays that are worked. 

Inaccurate classification of workers


Misclassification of workers is another common payroll mistake. It is possible to have two types of workers: full-time, part time and casual employees or independent contractors or freelancers.

Contractors and employees are defined differently for payroll tax purposes. If you are paying a contractor, certain exemptions and deductions may apply that will reduce the amount of tax you have to pay.

A contractor is an entity that agrees to produce a specific result for an agreed price.  If you need more clarification over how to classify if someone is an employee or contractor, it can be found at 

Invest in the right tools for the job 


One of the best ways to avoid making mistakes is to ensure that you have the right tools for the job. Investing in quality software helps make sure the process is streamlined and automated where possible.  

It is also important to make sure that any software is kept updated, there is no point in having the right tools for the job if they aren’t being used to their proper potential. 

We also suggest running any payroll reports before running payroll, this will help to catch and prevent any mistakes that have occurred and give you the opportunity to fix them before running payroll.   

Being aware of common payroll mistakes is a great first step to avoiding them so that they don’t create havoc in your business and lead to bigger problems like employee dissatisfaction.  


If you need help to ensure that your payroll system runs smoothly Sense in Numbers are happy to help.

About Author

Kate Gordon

With over 20 years experience in bookkeeping across Australia and the United Kingdom, Kate Gordon brings a wealth of knowledge by working with a range of clients from various industries. Covering a portfolio from small and medium enterprises to large corporations has led her to become proficient in all areas of bookkeeping.

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