January 29
Our team has switched many businesses from other payroll providers over the years, and one thing has become very clear. Most payroll problems are not massive system failures. They are small details that were missed, never reviewed, or assumed to be correct. Those details can quietly create tax exposure, benefit issues, or employee confusion over time.
Below are five of the most common payroll issues we run into when onboarding new clients, and why they are worth double checking in your current system.
Missing birthdates are surprisingly common. In many payroll systems, adding birthdates isn’t required during setup, so it gets skipped with the intention of doing it later. In practice, they often never get revisited.
Birthdates matter way more than most employers realize. Retirement plan eligibility, age-based rules and catch-up contributions all rely on accurate birthdates. Benefits providers also depend on this information to determine eligibility and proper reporting. When birthdates are missing or wrong, it can lead to enrollment issues or downstream corrections with the retirement plan provider.
This is a simple thing to fix, and one that can prevent bigger headaches later. It is also one of the first gaps that tends to surface when we are reviewing data during a payroll provider transition.
Another common issue we see are benefit deductions that should be pre-tax but are not being treated that way. This shows up with 401(k) deferrals, health premiums, or other benefit deductions that should reduce taxable wages but do not.
A quick way to spot this is by reviewing a payroll register and comparing gross wages to taxable wages. If pre-tax deductions are set up correctly, taxable wages should be lower than gross pay. When they match exactly, it’s a sign you need to reach out to your payroll company and see what’s going on.
These errors can result in employees overpaying taxes and employers having to correct payroll filings retroactively. Catching this early can save time, money, and frustration.
Accruals are another area where small setup mistakes can compound over time. We often see accrual policies that do not match what the employer intended, or employees assigned to the wrong accrual category.
This can happen as businesses grow, roles change, or new policies are introduced without fully updating the payroll system. The result is employees accruing too much or too little time off, and employers carrying unexpected liability on their books.
Accrual rates, caps, carryover rules, and employee groupings should be reviewed periodically to make sure they still reflect current policy and reality. It also should be reviewed when switching payroll providers.
Employee addresses often go untouched for years, especially if direct deposit is in place and paper checks are not being mailed. However, addresses play a critical role in payroll tax withholding and reporting.
We frequently see addresses that are outdated, incomplete, or no longer reflect where an employee actually lives or works. This is especially common with remote and hybrid employees. Incorrect addresses can lead to tax notices, incorrect state or local withholding, and problems with year-end forms.
Keeping addresses current is a simple habit that can prevent avoidable compliance issues.
Another issue we see are missing or incorrect state tax IDs in the payroll system. This often happens when a business expands into a new state, hires a remote employee in another part of the country, or changes entity information.
Without the correct state IDs assigned, tax filings can be delayed, rejected, or misapplied. In some cases, employers assume taxes are being handled correctly when in reality the setup was never completed.
Verifying that all active states with employees have the correct withholding and unemployment IDs on file is a critical step in avoiding penalties and notices.
If you’ve never really reviewed your payroll beyond basic processing, there is a good chance at least one of these issues exists in your system today. Most of these problems are not obvious day to day. They tend to stay hidden until a tax notice arrives, a benefit issue comes up, or an employee asks a question that uncovers a deeper setup problem.
A proactive payroll review can surface these issues early, before they become a problem. These are exactly the types of details we look for when onboarding new clients, and why many business owners are surprised by what we find. If you would like a second set of experienced eyes on your payroll setup, our team is always happy to help.
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