How to run a correction payroll

Nobody likes to make mistakes. It’s always a good idea to fix your mistakes as soon as you realize them, and this holds true for running payroll. If you over or underpaid an employee, withheld taxes incorrectly, or made another payroll-related mistake, then it is important to try to correct it ASAP. This is where a correction payroll comes in.

What is a Correction Payroll?

A correction payroll is a payroll run that happens off your regular cycle to fix an error made in a previous payroll. For most payroll mistakes, time is of the essence when it comes to fixing them, which is why employers often opt to run a correction, or off-cycle, payroll runs in those situations.

Correcting Mistakes in a Regular Payroll Run

It is possible to correct a mistake in a regular payroll run, but it is important to make sure you are following all state laws in this case. For example, if you underpaid an employee, some states have rules regarding how quickly you must send the payment to fix the mistake.

It may be alright to wait until your next regular run for the correction payroll, or that may be too long in your area. It pays to check and make sure you are following the law with your correction.

Types of Mistakes and Possible Remedies

There are a few main types of mistakes you may make with your payroll, and they all involve taxes, wages, and benefits. Basically, anything where money transfers hands is where you should be extra careful to ensure you are getting things right or you’ll have to perform a correction payroll.

Underpaid Employee

If you realize you underpaid an employee, you should fix the mistake as soon as possible. Let the employee know they will be receiving additional wages and what they are for. If it is alright with the employee, this may be a time when you should write a physical check so they can get the wages faster.

Once they’ve gotten the wages, it’s a good idea to have them sign something to acknowledge the mistake has been fixed so you have it recorded in case anything comes up in the future.

Overpaid Employee

If you overpaid an employee, you should check on your state laws before you make a plan to recoup the funds. Some states allow you to deduct the wages from a future payroll. Some states have limits on how much can be deducted, and others don’t allow this deduction at all unless certain requirements are met.

The one thing you won’t be able to do is withdraw the money from the employee’s bank account. ACH transfers are one way, so if you want to get the funds back, the solution will lie in deducting funds from future payrolls (if allowable in your area). This is a situation where open communication with your employee will go a long way to smoothing things over.

Withheld Taxes Incorrectly

If you overpaid taxes, many tax agencies will give back the excess amount as a refund when you file your taxes. If an employee had too many taxes withheld (like if they made an error on their W-4), they should expect a refund when they file their taxes for the year.

On the business side, some agencies will give you a refund and others will use the amount as a credit towards future payments, but will not refund it. Check with the tax agency in question to see what their overpayment policy allows for.

If you underpaid taxes, you should try to correct the mistake as soon as possible. Some taxes, like unemployment, have a quarterly deposit schedule, so you have until the end of the quarter to withhold and pay the correct amount of taxes. Others, like income tax, may have a more frequent deposit schedule, so time is of the essence to get those taxes in on time.

Withheld Benefits Deductions Incorrectly

This mistake is a little less common, but it can happen. If you did not withhold enough money from your employees to pay for a benefit like health insurance, you can typically make up for it in a future payroll.

Just make the employee aware of the benefit deduction and have them authorize it. If you withheld too much money for a benefit you will likely need a correction payroll. If you overwithheld pre-tax funds this will impact all of the taxes in the payroll, so it pays to check with your bookkeeper or payroll processor to make sure they can handle this correction.

Preventing Payroll Errors

The best way to handle payroll errors? Prevent them from happening in the first place. Here’s how to stay ahead of the game.

• Use Automated Payroll Solutions: Automated systems reduce human error. Homebase’s Payroll feature connects directly to time clocks, ensuring accurate hour tracking and payroll processing.
• Implement Regular Audits: Regularly review payroll data to catch discrepancies early.
• Train Your Team: Ensure everyone involved in payroll understands the process and common pitfalls.

By investing in tools like Homebase Payroll, you can minimize errors and keep your payroll process running smoothly.

Communicating Payroll Errors to Employees

Messing up payroll is bad enough. But how you communicate the error can make or break employee trust. Here’s how to handle it like a pro.

Be Transparent

Honesty is the best policy. Be upfront about the mistake without assigning blame. Use inclusive language and take full responsibility.

• Example: “We discovered an error in your recent paycheck. We’re working to fix it immediately and will ensure it doesn’t happen again.”

Be Sincere in Your Apology

A genuine apology goes a long way. Acknowledge the impact of the error on your employees’ lives and rectify it promptly.

• Example: “We apologize for the inconvenience this payroll error has caused. We understand how important timely and accurate payments are and are committed to resolving this quickly.”

Transparency and sincerity can turn a potential crisis into an opportunity to strengthen trust and show your commitment to your team.

Additional Resources for Payroll Correction

Sometimes, you need more than just a quick fix. Here are some additional resources to help you navigate payroll corrections:

• Guides on Contribution Amount Changes: Learn how to adjust contribution amounts after payroll processing.
• Payroll Report Uploads: Tips for uploading payroll reports accurately.
• Fixing Common Errors: Step-by-step guides to address frequent payroll mistakes.
• Getting Started with Self-Service Plans: Resources to help you set up and manage self-service payroll plans.
• Changing Payroll Providers: What to do when switching payroll providers.

These resources can provide the extra support you need to handle payroll corrections effectively.

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Is Payroll Correction Worth It?

Absolutely. Correcting payroll errors isn’t just about fixing mistakes; it’s about maintaining compliance, building trust, and ensuring financial accuracy. When your payroll is accurate, your employees are happy, your business stays compliant, and your financial records are reliable.

Think of payroll correction as an investment in your business’s health. It’s not just worth it—it’s essential.

By following these guidelines and leveraging tools like Homebase, you can tackle payroll corrections with confidence and keep your business running smoothly.

Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.