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3 Oddballs That Can Trip Up Your Payroll Process (And What To Do)

There’s nothing worse than running payroll only to realize something’s wrong. A tax calculation error, lack of funds in the old payroll bank account, or a direct deposit timing mistake can ruin your whole day.

Not to mention, payroll process mishaps can lead to more serious problems than just your own frustrations … like disgruntled employees or IRS penalties.

What’s an employer to do? I’ll tell you what: Stay ahead of the game by understanding common nuances that can trip up your payroll process.

3 Oddballs That Can Trip Up Payroll

Don’t let these three pesky oddballs mess up what could be an otherwise great (and normal) payroll run…

1. Federal Banking Holidays

If your business is closed on banking holidays (e.g., Christmas, Thanksgiving, New Year’s, etc.), your employees probably look forward to getting the day off. But, they won’t be looking forward to not receiving their direct deposit if that bank holiday happens to fall on payday.

Bank closures on—or around—payday can trip up your payroll processing. You probably run payroll a certain number of days before payday so that there’s time for everything to go through. But if you run payroll like normal (e.g., three days before payday) around a bank holiday, your employees won’t receive their direct deposit funds on payday. Instead, they’ll receive the money the next business day, which could wind up being days later than normal

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Cue the chorus of disgruntled employees.

Of course, you could expedite the process to get that money into your employees’ accounts on time, but you’ll probably have to cover expedite fees (cue disgruntled you).

What to do: Mark your calendars for federal legal holidays. Set alarms. Talk with your bank ahead of time. You can prepare for banking holidays by running payroll one business day earlier. That way, employees receive their direct deposit the day before the bank holiday.

Make sure your team knows they can expect their direct deposit earlier than normal. You might opt for distributing a payday or banking holiday schedule at the beginning of the year.

So, next time there’s a bank holiday that falls on payday, remember to:

  • Collect timesheets from employees earlier
  • Submit your payroll earlier

2. Three-Paycheck Months

If you pay your employees biweekly and fail to plan for three-paycheck months, you could be in for a world of shock. Not to mention, your bank account may not have enough funds to cover that pesky third paycheck.

But let’s take a step back, first.

Under a biweekly pay frequency, employees normally receive two paychecks per month. But, there are 26 paydays in a biweekly frequency … So, where are those two extra paydays coming into play?

Introducing three-paycheck months. Employees receive three paychecks—not two—in two months of the year. And for employers who aren’t expecting the extra pay period, that third paycheck can be a real punch in the gut.

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What to do: Plan now, rejoice later. In addition to forgetting to run payroll for that third payday in the three-paycheck months, you could be short on funds.

To avoid cash flow problems, start by adding the third paycheck into your monthly and annual budget. You can also prepare for the extra payroll months by:

  • Speeding up collections
  • Cutting back on expenses
  • Increasing revenue (e.g., have a sale)

3. Leap Year

Leap year comes around every four years. But when it does, it could mess up your payroll process. Why? Because leap year adds an extra day to February (February 29).

Depending on your pay frequency and the day of the week February 29 falls on, you might run into some problems. That is, you may wind up with an extra pay period during the year if you run payroll weekly or biweekly.

What to do: To avoid potential problems with leap year payroll, know when that bonus day is coming up. If necessary, adjust your payroll to include the extra day.

And, keep communication alive and well in your workplace so your employees are all in the know.

Other Potential Payroll Snags

Sure, these three oddballs I’ve spent all this time talking about can be enough to make your head spin. But, they’re not the only payroll snags you might encounter.

You could make other costly payroll mistakes, such as:

  • Failing to keep up with tax rate changes
  • Miscalculating employee wages and taxes
  • Using the wrong payroll forms
  • Missing deadlines

What to do: Do this one thing to help prevent the above snags: Sign up for a full-service payroll system. Sure, you may think I’m biased because I own an accounting software and payroll company.

But the truth is, I’ve seen so many business owners struggle with the confusing payroll responsibilities all employers have. Heck, I’ve even experienced it myself (a little backstory on why I started my company).

When you sign up for full-service payroll with a payroll software company, you get accurate calculations using up-to-date rates. And, you don’t have to worry about filing and depositing taxes yourself.

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Now that’s what I call a pain-free payroll process.


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