Payroll errors can make for a miserable time in the HR department. Even the smallest of errors can result in significant miscalculations of income taxes, FICA, and even benefits contributions. Worse yet, errors can get your company in trouble with federal and state authorities. That's why we constantly remind employers about the benefits of outsourcing a payroll to a company like ours.
Having said all that, doing a few simple things in the HR department can reduce the risk of errors considerably. One of those simple things is maintaining a payroll history. Like a web browser history or history of banking transactions, a payroll history is a record of payroll processing details for each and every employee.
Your company creates historical data whenever payroll is processed. The question is this: are you keeping that history as a searchable record for future use? The answer is found in the way you process payroll.
Manual Payroll and Paper Records
Perhaps you are among the small number of employers who still process payroll manually. Your employees fill out manual time slips or use paper punch cards. Payroll processing is the task of someone in the HR department who manually calculates time and earnings, writes and signs checks, and distributes those checks to employees.
Under such a system, you should be saving all those paper records for at least three years, if not longer. Seven to ten years would be more appropriate just for your company's own protection. The point to understand is this: those paper records are your payroll history. They need to be stored and protected.
Processing Payroll with Software
If your company is no longer processing payroll manually, then you are either using a software package or you have outsourced payroll to a company like BenefitMall. In either case, the computer software used to manage all things payroll creates digital records that can be stored as reports, databases, etc.
One of the advantages of software-based payroll is that digital records are automatically created. And unless a company is using a poor-quality software package, those records are kept for a long time unless they are consciously deleted by a user with the appropriate permission.
Here is a list of some of things payroll software keeps track of for historical purposes:
• Employee earnings
• Time and attendance records
• Tax and benefits withholding
• Payment information
• Federal and state forms (e.g., Form 940, Form W-2, etc.).
Why Payroll History Is Important
We encourage employers to get a handle on their payroll history for their own protection. Whether you handle payroll manually, use a software package, or outsource it to a service provider, an accurate payroll history can come in handy for a number of important reasons:
• Tracking Down Errors – Even the most robust payroll system is subject to the occasional error. When an error is discovered, it is not enough to simply correct it in the here and now. It's often necessary to track down the original source of the error as well.
• Litigation – Should an employer ever find itself involved in litigation with the IRS or former employees, data from a payroll history may be necessary for the company's defense.
• Transitioning and Upgrading – Should an employer decide to transition from in-house to outsourced payroll, an accurate payroll history will be required to make for a smooth transition. History is also important when upgrading from an old software package to a new one.
Your company is generating a payroll history with every passing processing cycle. How you maintain that history is crucially important, regardless of how payroll is actually processed.