Common Payroll Mistakes Made By Small Business Owners

common payroll mistakes by small business

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Payroll is a part of the business operation process that needs to be done every month. For a small business, payroll might not be handled by the HR department but rather by a person in charge of finance. Because the employees of the small business are not as big as the corporation, small business owners tend to do it manually without realizing the common payroll mistakes that they might make.

We all know that payroll plays a significant role in staff retention and workforce morale. Employees are the most valuable assets for business owners, so they can’t make any mistakes in managing the payroll. If there is any mistake on payroll, not only that the employees’ morale will decrease, but business can get into trouble with the government and in extreme cases, they have to pay fines or penalties.

Here are some common payroll mistakes made by small business owners:

Miscalculation and Human Error

Miscalculation can be overpayment or underpayment. It might be hard for HR staff to stay accurate on employees’ payroll, especially when dealing with different worker classifications and work schedules. It doesn’t matter whether the business size is still a small business, miscalculation can still happen anyway.

Payroll is a complex process because it’s containing a lot of factors such as attendance, overtime, leave, benefit, and expense. This miscalculation can be prevented with the help of payroll software that will help small business to calculate employees’ payroll without miscalculation.

Employers need to keep updated with employees’ data such as age, nationality, date of commencement, immigration status, and bank account number. This might cause stress to the one who’s in charge of payroll and employee data because they need to check manually with the employee.
The EPF contribution rates vary according to the employee’s age and whether they are a Malaysian/permanent resident. Foreigners who are not permanent residents are not obligated to contribute and different rates may apply if they do. Also, effective from January 2021 wages (February 2021 contribution) until December 2021 wages (January 2022 contribution), the contribution rate was reduced from 11% to 9% for employees aged under 60. However, an employee can maintain their contribution rate at 11%. If done manually, human error might occur and can result in penalties.

Fail to Comply Government Regulations

In Malaysia, apart from EPF contributions there is also Social Security Organisation (SOCSO) who administers the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). SOCSO coverage and protection are limited to Malaysian citizens and permanent residents. A monthly contribution must be made and may fall under one of two categories:

  • Both the employer and employee make monthly contributions to EIIS and IPS. The sum is based on the employee’s monthly wages and is restricted to a maximum of MYR 69.05 for the employer and MYR 19.75 for the employee.
  • The employer makes a contribution to EIIS only for employees who are not eligible to be covered under the IPS, with the amount restricted to a monthly maximum of MYR 49.40.  Malaysian employers are required to contribute to SOCSO on a monthly basis for all their foreign employees (including expatriates). However, the employment or assignment arrangement could impact the applicability of the requirement onto the employee. As a result, each case needs to be examined individually to determine the applicability.

Messy Payroll Records

Another common payroll mistakes are that the employer thinks payroll records sound like no big deal, especially for small business. But what if there is a dispute regarding employees’ payment? Business need to show the proper records of employees’ payment if asked by the government regulators.

In Malaysia, businesses need to comply with The Inland Revenue Board (IRB) about tax filing deadlines. Business need to start changing their payroll records from paper-based to a more modern way. With the right payroll software, businesses can keep their employees’ payroll records digitally and the data will be stored safely on the cloud server. So when requested by government regulators, business can easily get the data.

Those are some of the common payroll mistakes that small business tend to make. If your business still manually calculates payroll each month, consider a software payroll that can help you with the payroll. HRMLabs can help you with this. Book your free demo with our team now.