Costly mistakes lead to job cuts, increased turnover, lower morale: survey
One in five payrolls in the United States contains errors.
And the average organisation makes 15 corrections per payroll period — with each costing employers roughly $291, according to a survey from Ernst & Young (EY).
The effects can be costly, including lost revenue, hours correcting errors, and potential lawsuits and fines.
"Payroll errors have consequences for employees, businesses and the broader economy," said Chad Richison, CEO of Paycom, in a media release. "Organizations need to ensure their payrolls are 100% accurate and not hindering their businesses or people."
Job cuts after errors
The EY survey of 508 individuals who work with payroll also revealed that 44% of employers are cutting jobs because they are facing litigation due to payroll errors.
More than half (56%) of those facing regulatory and compliance issues stemming from payroll errors were also cutting jobs, according to the report.
They also posted declines in employee morale (41%), increased employee turnover (38%), reputational/brand decline (36%), operational cost increases (16%) along with fines (15%).
The findings come as more employers are predicted to hike salaries in 2023. For Canadian employers, average increase for salaries is expected to be 4.2% in 2023, according to data from Normandin Beaudry.
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In Asia Pacific, data from ECA International found that the average real salary increase in the region is expected to be 1.3%.
Costly consequences
An average 1,000-employee organization spends an aggregate of 29 workweeks fixing the most common payroll errors, according to EY.
Time/attendance and expense errors were the most common payroll errors, occurring on average more than once per employee per year. Those errors cost about $250,000 per 1,000 employees (all dollars US). Errors recorded include:
|
Payroll error category |
Errors per 1,000 workers/year |
Cost per 1,000 workers/year |
|
Time/attendance and expense |
1,139 |
$250,000 |
|
Vacation/PTO/sick time requests |
721 |
$220,000 |
|
Benefits |
503 |
$140,000 |
|
Schedule earnings, deductions |
410 |
$135,000 |
|
W4 and tax allocation changes |
229 |
$135,000 |
|
Direct deposit |
159 |
$45,000 |
Fixing missing and incorrect time punches emerged as the most time-consuming payroll error to correct, the report further found, as companies spent 26 minutes fixing these errors per employee in the last fiscal year.