Payroll mistakes can get pretty costly.
Not only can they lead to some hefty financial penalties, but they can also put a strain on employee morale. If you can’t pay employees correctly and on time, you’re gonna have to deal with a frustrated workforce. And nobody wants that.
But even though payroll is crucial to maintaining a smooth operation, it’s not uncommon for errors to occur. These mistakes can arise for various reasons, such as miscalculations, outdated regulations, or simple human error.
Thankfully, there are effective strategies and tools available to help you avoid these payroll errors altogether. And that’s exactly what we’ll be talking about in this article.
This Article Covers
- What is payroll management?
- Who should manage payroll?
- 5 Best Practices for Error-Free Payroll Management
What is payroll management?
First things first, let’s define payroll management and what it entails.
Payroll management is the process of handling employees’ financial records, including salaries, benefits, taxes, and deductions. It involves calculating wages, making payments, keeping accurate payroll records, and managing tax forms.
Businesses can manage payroll in several ways: manually, using spreadsheets, or automatically with payroll software. Some companies also choose to outsource payroll tasks to payroll experts.
Who should manage payroll?
The answer to this can vary.
In smaller businesses, payroll duties are often shared between the Human Resources (HR) department and the Accounting team. HR usually takes care of employee information and time tracking, while Accounting focuses on financial tasks like processing payments and managing taxes.
In larger companies, there may be a dedicated payroll department that collaborates closely with both HR and Accounting to ensure payroll is managed efficiently and accurately.
5 Best Practices for Error-Free Payroll Management
Payroll management is no easy task, and with the complexity of regulations and the multitude of details involved, it’s easy to make mistakes. Avoid them by following these payroll management best practices.
1. Stay updated on key payroll laws
Payroll in Malaysia is mainly governed by the Employment Act 1955. This act outlines payroll standards for everything from wage periods and salary calculations to deductions and other remunerations.
As per the Act, any overtime worked beyond regular hours must be paid at least one and a half times their normal hourly rate, regardless of how their pay is calculated. Every employer must also pay their employees’ wages within seven days after the end of each pay period. This payment should be made after subtracting any legal deductions.
It’s crucial to regularly review updates to this act and other Malaysia Labour Laws to ensure your payroll practices remain compliant.
You also want to check on which statutory contributions apply to your employees. These include contributions to the Employees Provident Fund (EPF), which is a mandatory savings scheme with both employer and employee contributions.
There’s also the Social Security Organization (SOCSO), which provides social security protection and benefits like medical treatment and compensation for workplace injuries. And then there’s the Employment Insurance System (EIS), which offers financial assistance to employees who lose their jobs.
This is a lot to keep track of, but there are payroll statutory compliance systems that can help you simplify the process and automatically apply and calculate statutory contributions.
2. Automate payroll calculations
Let’s face it, doing payroll manually is both time-consuming and error-prone.
With manual payroll processes, there’s always a risk of overlooking details, making miscalculations, or applying incorrect tax rates. This can lead to significant errors, compliance issues, and delays that can affect your entire payroll cycle.
Automated payroll software offers a much-needed solution to these challenges.
With payroll software, you can easily automate salary calculations, deductions, taxes, and more. A payroll software like PayrollPanda can even compute statutory contributions such as SOCSO, EIS, and EPF automatically based on employee details and the latest regulations. This makes payroll management not only more convenient but a lot more accurate and efficient.
There’s a ton of payroll software out there that can streamline the way you do payroll, but it’s important to choose one that’s LHDN-approved and compliant with Malaysian regulations. This ensures that all your calculations are accurate and meet the legal requirements, reducing the risk of fines and penalties.
Need help picking out the best payroll management software? Check out our rundown on the 6 best payroll management software in the market.
3. Use time tracking software for accurate timesheets
Accurate timesheets are absolutely necessary for accurate payroll management. You want to be able to track attendance and how many hours an employee has worked to calculate their pay accurately. This includes regular hours, overtime, and any time off taken.
However, filling out manual timesheets can be cumbersome and prone to errors. This is why plenty of companies are turning to time tracking software. If you want to ensure you don’t miss a single payroll hour, you should definitely consider using one too.
Time tracking software can automatically record work hours, reducing the risk of human error and ensuring all hours worked are captured accurately. It can also provide real-time data on employee attendance, making it easier to track various work types and generate accurate payroll reports.
By integrating time tracking software into your payroll system, you can improve efficiency, ensure accurate compensation, and maintain a smooth payroll operation. It’s a win on all fronts.
4. Track tax filing deadlines
Staying on top of tax filing deadlines is crucial for error-free payroll management. Missing these deadlines can lead to penalties and unnecessary stress, so it’s important to have a system in place to keep track of them.
In Malaysia, there are several key dates to remember. For instance, Form BE, which is the individual income tax return form, needs to be submitted to the LHDN by 30th April. If you’re filing electronically, you might have a bit more time, with an estimated deadline of 15th May.
For businesses, Form B, which covers income from business activities, has a similar timeline with a submission deadline on 30th June and an e-filing deadline around 15th July.
For corporate tax filings, key forms like Form EA, which provides an individual’s statement of remuneration, must be issued to employees by 29th February. Similarly, Form E, detailing payments made to employees and MTD/PCB deductions, is due by 31st March.
It’s important to note that the dates mentioned above can vary per year so it’s essential to stay updated via government announcements and websites.
By keeping a calendar or using payroll software that sends reminders, you can ensure that all these forms are submitted on time. This proactive approach helps avoid any late fees and ensures that your payroll processes run smoothly without any tax-related hiccups.
5. Keep complete payroll records
Keeping thorough and accurate payroll records is essential for error-free payroll management. Not only does it help you demonstrate compliance with tax laws and labour regulations, but it’s also handy when settling employee disputes.
These records should provide a detailed account of all payroll transactions, including employee hours, wages, deductions, and benefits. Common payroll documents kept by Malaysian businesses include:
- Employment Contracts
- Attendance Records or Timesheets
- Pay Slips
- Income Tax Forms
- Statutory Contribution Records
- Leave Records
- Expense claim slips
- Commission slips, and so on
Taxpayers are also required to keep detailed income-related records for seven years from the end of the financial year. These records must be retained in Malaysia and include books of accounts, invoices, vouchers, receipts, and any other documents needed to verify entries in the accounts.
To Wrap Up
Managing payroll is not easy, but it is a necessary and critical part of running a business. Accurate payroll management ensures that employees are paid correctly and on time. It also helps businesses comply with legal requirements, avoid costly penalties, and manage financial resources effectively.
By implementing best practices like tracking tax filing deadlines, keeping complete payroll records, and utilizing technology to enhance efficiency, businesses can significantly streamline payroll processes and ensure error-free payroll management.
