There are three types of days that employees most look forward to: weekends, holidays, and most importantly, pay days. Just imagine your staff’s dismay if accounting errors suddenly render their salaries lower than usual. Unfortunately, even one of the nation’s top universities isn’t immune to payroll errors, as this article from The Harvard Crimson reports:
“Due to a mistake in the way the University reported its employees’ taxable income, approximately 11,000 Harvard employees paid excess income taxes between 2009 and 2013, with the hardest hit contributing several thousands dollars more than they should have.
The misclassification of earnings occurred after Harvard changed the structure of its supplemental life insurance plan, such that the benefit should no longer have been taxable, according to a letter the Vice President for Human Resources Marilyn Hausammann sent to all affected employees on Feb. 7. Despite the change, the University did not alter the way it reported taxable income, which resulted in employees paying taxes on income that they did not receive.
Hausammann’s letter stated that the total excess reported income exceeded $20 million, although individual employees were affected to different extents…”
Life-insurance-related mistakes aren’t only errors that payroll accountants commit, though. For instance, many employers misclassify their workers as well, labeling them as independent contractors instead of full-time employees. This is a grave mistake since worker classification determines whether someone receives benefits or not, aside from the fact that compensation reporting works differently for the two.
Another common error is not including prizes, awards, and gift cards as part of employee income. As per federal law, the former two are considered fringe benefits and are thus subject to federal income and withholding tax. Gift cards, on the other hand, are tantamount to cash so they will always be taxable wages no matter how big or small the value.
To prevent these errors, it really pays to familiarize yourself with all the local tax and labor rules that apply to your company. Another way to minimize errors and streamline payroll accounting is by purchasing accounting software like the Peachtree Quantum 2013 program. With it, you enter employee information once and it automatically computes federal and state withholding taxes on the fly.
If it’s your first time buying Peachtree Quantum products though, make sure to contact only premiere resellers like Quantum Buyers. With their help, you can get this industry-leading accounting solution for a very competitive price.
(Source: 11,000 Employees Overtaxed Because of Harvard Payroll Error, The Harvard Crimson, February 10, 2014)