Managers, business owners and NGOs often contact our company with the question – How to make sure that wages are calculated without errors? So I propose to consider what managers and managing business owners should pay attention to in order to be sure of the correctness of payroll calculations.
In this article we will consider:
- The main components of salary and which of them we believe need professional attention;
- Impact of errors in salary calculations;
- Our advice to managers and owners to avoid major mistakes
The concept of salary and its components.
First of all, let’s define what a salary is. Salary is a monetary reward that the employer pays to the employee for the work performed.
At first glance, it may seem that salary calculation is a fairly simple process. However, this can be a complex task that requires knowledge and understanding of various factors. The salary includes various components that depend on the salary policy of the company and the terms of the collective agreement. The main components of wages include:
- Basic salary (salary);
- Additional salary (monthly/quarterly bonuses, vacation, indexation);
- Other incentive and compensation payments (annual bonuses, financial assistance).
In practice, each type of accrual requires special attention from a payroll specialist, because it is important to follow clear rules for keeping records of working hours and calculating wages.
The impact of errors in salary calculations.
Sometimes there are situations when, after all, salary calculation and taxes were made with errors. You will find out about it, for example, if your employee asked about disagreement with the amount of payment received, violation of payment terms, etc. Each of these cases can have negative consequences for your activity and of course it creates additional risks such as:
- loss of trust of employees;
- loss of time and resources that will be directed to correcting errors;
- financial losses.
This once again emphasizes the importance of correct calculation and payment of wages. Avoiding mistakes will save you time and money.
Additional negative consequences may be:
- Fines and penalties. Violation of tax laws or failure to comply with payroll requirements may result in fines, penalties and other financial penalties.
- Deterioration of relations with employees – mistrust and dissatisfaction among employees. This can lead to conflict situations and a negative impact on the work team.
- Negative impact on the company’s reputation. Constantly making mistakes in the calculation of wages and taxes can lead to a loss of trust on the part of customers, partners and other stakeholders.
- Tax audit and lawsuits with employees. Mistakes in calculations can attract the attention of regulatory authorities. This can lead to unscheduled inspections and additional costs for legal advice, lawyers, etc.
- Financial losses – overpayment of taxes; inaccurate display of costs in accounting.
In the event that errors are detected during an inspection by state authorities, the amount of the fine for violation of the terms of payment of wages may be in 2024, for example, up to 80,000 hryvnias for incorrect registration of an employee or payment of wages without tax.
Our recommendations to managers to minimize the risks associated with accrual and payment of salaries.
In order to make sure that the salary and tax calculations are correct, we recommend doing the following:
- Develop procedures for calculating the salary and agreeing the payment amount with the employee before the actual payment;
- Entrust the calculation of wages and taxes to internal HR specialists and an accountant or specialists of an outsourcing company.
- Automate the process. The use of special software will help to avoid errors that are associated with manual operations.
- Apply a re-check of the final settlement for compliance of the amounts to be paid with the previous agreements with the employee.
- Conduct an independent audit of processes related to payroll and tax calculations. As a rule, an outside view gives more confidence in the obtained result.
- If necessary, consult with specialists in the field of accounting and taxation. They will help solve complex issues and give valuable advice.
Therefore, it is important to organize the process of calculating and controlling wages in such a way as to minimize errors. To do this, we advise you to conduct a tax audit at least once a year and seek advice from specialists.
Nastya Kozlenko
