4 Common Mistakes to Avoid When Creating Pay Stubs

Pay stubs summarize how employees’ total earnings are distributed within a particular pay period and are critical in the payroll process. Generating pay stubs each pay period makes it easier to complete W-2 forms. As an employer, these documents are key in helping keep track of your expenses while allowing employees to ensure they’ve received the correct pay.

While pay stub accuracy is paramount, there’s a risk of committing blunders when making these documents, leading to pay disputes, employee dissatisfaction, and legal action. Outlined below are five common mistakes to avoid when creating pay stubs.

1. Miscalculating pay

Incorrect paychecks can be quite frustrating for employees, mainly if it means missed or late payment or having to give some money back. Also, pay miscalculations is a waste of time as you’ll need extra hours to look for and fix mistakes. These mistakes can happen with hourly or salaried employees. Pay miscalculations may include:

• Underpaying or overpaying employees
• Deducting incorrect amounts for employee benefits and other payroll deductions
• Missing first paychecks for new hires
• Incorrectly paying workers on leave

Automating payroll is the simplest way to avoid miscalculating employee pay. With the help of a paystub generator, you can create pay stubs in less time while ensuring accuracy.

2. Failure to account for overtime 

Failure to account for or miscalculate overtime not only causes employee dissatisfaction but also leads to hefty fines and other legal consequences. Under overtime regulations, employees covered by the FLSA (Fair Labor Standards Act) must get overtime pay of at least one and one-half times their normal pay rates for hours worked beyond 40 in a workweek.

Overtime mistakes, such as time-tracking blunders, often occur due to erroneous bookkeeping. These errors can happen if you misclassify your workers, haven’t counted employee hours correctly, or you aren’t updated on local or state labor laws. Automated time tracking systems can help you preserve workers’ rights to fair pay and account for overtime correctly by:

• Automatically recording hours worked
• Providing real-time reports and data
• Ensuring less time-consuming and more accurate time-tracking

3. Disorganized or incomplete record-keeping

Disorganized or incomplete record-keeping can impact your company negatively in different ways. It complicates your administration time more than necessary and makes it hard to do an audit due to a lack of the necessary information. Disorganized or incomplete record-keeping has numerous consequences, including:

• Lack of organization wastes valuable time that could be used to grow your business
• If you have several versions, audits, or versions made by different employees, it can be hard or impossible to determine which records are accurate

Investing in a solution with central document storage can help avoid the consequences of disorganized record keeping.

4. Incorrect tax withholding

Incorrect tax withholding is another common mistake to watch out for when creating pay stubs. This error has adverse consequences on employees and employers. Incorrect tax withholding has several effects, including:

• Loss of trust: Employees depend on employers for correct tax withholding from their paychecks. When employers don’t do that, workers may lose trust in them
• Interest charges and penalties: When employers don’t withhold the precise tax amount, they risk facing penalties and interest charges
• Financial burden: Withholding the wrong tax amount can cause a financial burden on employees. They may be required to pay extra taxes at the end of the year

Keeping records up-to-date, and applying tax laws correctly and with the right tax rates can help avoid this mistake.

Endnote

Inaccurate pay stubs can have severe consequences on employers and employees. Understand the common mistakes to avoid when creating pay stubs, including miscalculating pay, not accounting for overtime, incorrect tax withholdings, and more.