Surprising Payroll Errors: Can Your Business Afford the Risk?

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[00:00:30] Bank of America faced significant fines in 2019 for payroll errors that were not identified due to a lack of regular audits, which led to improper overtime payments for employees. Welcome to our podcast, It's About Payroll. We're your hosts, Brian Escobar and Walter William Duncan III. Whether you're new to the payroll game or a seasoned veteran, we have something for you.

[00:00:58] Welcome back folks. This is episode 149. It's about payroll. I always buck. Well, before I get into my banter, what's up, Walt? Middle of March already? Yep. For real, bro. It's just, but that's what it is. At some age, it's just. When we were younger, it seemed like time was still. Still. Still. Still. Now it's just, man. I'm by.

[00:01:23] I don't know if it's the matrix or what. Yeah, for real. But yeah. Yeah, man. I always, I was, what I was gonna say is I always bug out because the show is, it's about payroll, right? Yeah. And the common, I could just tell people what it is, but they, the way they regurgitate it is it's all about payroll. It's about your payroll.

[00:01:45] So look, Hey, some people call us pay talk. No, they can't do that. Yeah. We're talking about pay. I'm just like, Hey, I'm flattered. Pay talk is a separate payroll podcast. Shout out to APA. Payo yo.

[00:02:03] And I think if you think about it, I don't know. I don't know. We gotta see if there's a survey. Any who, um, what's going on? Let's see. We got a little financial fitness update. Anything up there in our financial fitness challenges updates? No, I think it's the same thing. Just watching the stock market, watching these different funds that I have invested in and everything watching the, the, as far as the music that I put out there, seeing if any interaction is going on with that.

[00:02:31] Different savings updates. No, really just paying off some stuff here. They're paying off some credit cards. That's huge. Watching, watching, watching my score go up. Like I'm always like to see your score go up. What's that usage rate for credit cards? Getting that down the credit card to like that round 35, 30, 25%, whatever. Last I heard it should be like under 20. Yeah. Right now I was doing research. I said 30 is still a good benchmark. Okay, cool. Yeah. Okay.

[00:03:00] So we'll do what's best for you. If you're listening, whoever, no, not at all. Do hit it 30%. That's what's best for your credit card rating. Was, yeah. Somebody might be a hundred percent maxed out. That's not going to work. We all been there. Yeah. But that's not, not help. We're talking about health. We're talking about financial health, fitness, fitness, financial unhealth and unfitness is easy.

[00:03:25] Yeah. Yeah. It's the other part that's hard to be financially fit. I'm still not there. So please focus on take it like, Oh, who is he? I think I'm with y'all. Hey, this is Brent Skinner, host of small talk window here at the work defined podcasting network. Have you ever wanted a short podcast to listen to during a coffee break? If your work day, you've come to the right place.

[00:03:48] My guests dispense with a small talk as quickly as possible and settle into a meaningful conversation around the world of work. Make little incremental. Yeah. So I think an opportunity that we may have, unless you're, you may already be doing it, but I know I haven't been doing it as much in regards to the stocks, the crypto, those different things that I'm investing in.

[00:04:13] You're on Robin hood, me on public or whatever. And it's finding resources or people that actually, they are experts in the industry and like seeing how, what they talk about, what to invest in and different stuff. You may already be doing that. I think I could do a little bit better at that to help me with my finance, finance fitness challenge from my end. All right. Quick article from OSHA.gov. I'm always on the wellness kick and stuff like that.

[00:04:43] So I just have some stats from an article that OSHA put out a couple of years ago and it's about workplace stress. And so it says nearly one in five U S adults live with a mental illness. And that workplace, yeah. And that workplace stress has been reported to cause over a hundred thousand and 20 deaths in the U S each year. People are feeling it bro. Yeah. And so approximately 65% of U S workers surveyed have caricature.

[00:05:13] Have characterized work as being very significant or somewhat significant source of stress each year from 2020, 2019 up until now. And some of that is probably due to COVID what happened with COVID and stuff like that. 2019, 2020, 2021. 2021. Yeah. And then 83% of U S workers suffer from work related stress and 54% of workers report that the work stress affects their home life.

[00:05:42] So over half of the workers that were surveyed said, Hey, I take it home with me and it impacts my home life. All right. Let's get into it. As you're setting ambitious goals for 2025. Remember that a well-organized team is the foundation for success. So in 2025, streamline your business operations with. Time track go. Time track. So their user friendly time tracking serve software empowers you to get organized.

[00:06:11] Say goodbye to messy spreadsheets and inaccurate time entries. Effortlessly track employee hours with their user friendly time clock. Streamline time off requests and approvals with their intuitive system and automate those vacation and sick leave policy. All right. So let's get into the main topic here. So what I did is just got the potential impact and giving an example, an actual example of when it happened and when it costs some money. And some of the company companies are that are in here, you're very familiar with too.

[00:06:40] So the first one that I have is also the misclassification of employees, right? And classifying an employee as exempt from overtime when they should be classified as non-exempt, right? So this self-explanatory that can lead to lawsuits for back wages, penalties, interests. So one good example of that is in a case where Amazon in 2020, where the company faced scrutiny for not paying overtime to warehouse workers classified as exempt. Wow.

[00:07:10] So that happened there. The next one that I have is incorrect application of state and local tax laws. So failure to account for state specific tax laws, such as withholding rates or local tax laws. So like you said, that's mismanagement of taxes. And there was an example of that in New York City and where because New York City has its own tax rules. And in 2017, a company named Zynga is a gaming company.

[00:07:39] They were fined for failing to withhold taxes properly from remote employees in certain cities. Optimize your business with a workforce AI edge powered by Vizier. Make smarter decisions and achieve better outcomes with real-time AI insights delivered to every people leader. Explore more at visier.com. So I led to a lot of money. And then number three is misunderstanding or ignoring paid family leave or sick leave policies.

[00:08:09] So incorrectly applying those leave policies, especially in those jurisdictions that have those specific laws, could lead to noncompliance, result in lawsuits, penalties, and negative public perception. In 2019, Uber faced a lawsuit for not properly handling paid sick leave for drivers in California. And California is very employee-centric, as we always say.

[00:08:34] So number four is failure to comply with international payroll laws. So this company's failing to properly handle payroll for international employees, making sure that they're taxed correctly, having the correct tax withholdings. It's very complex over international payroll, global payroll, right?

[00:08:54] So Google actually faced some legal issues in France in 2019 when it was revealed that the company owed millions in unpaid social security contributions after failing to comply with French payroll laws for their contractors. Number five is payroll withholding for non-taxable benefits. So withholding taxes on non-taxable benefits like certain health reimbursements and commuter benefits.

[00:09:20] So they can lead to over-withholding and lead to claim for refunds for employees and can lead to an IRS audit. So Target had an issue where they were fined $4.3 million in 2014 for improperly withholding payroll taxes on benefits that were not taxable under federal law. So yeah, so like a lot of these companies have paid millions in these examples, right?

[00:09:45] Number six is incorrectly processing bonuses and incentive pay, which we do a lot in payroll. So like miscalculating those taxes on those commissions and bonuses can lead to the wrong taxes being withheld and lead to penalties and audits. So Microsoft actually faced an issue where bonuses were paid to employees that weren't properly taxed and that led to millions in fines. So payroll error in handling employee equity is another issue, right?

[00:10:13] So that could lead to misreporting stock compensation and that can lead to IRS fines and lawsuits. And so Tesla made headlines in 2017 for mishandling the taxation of employee stock options leading to multimillion dollar settlement with the IRS. Yes.

[00:10:30] Number nine is the errors in retroactive pay calculations, which we, another thing that we normally do in payroll, we always have to do a retro, get a change that's effective dated for two months ago or whatever. And it could be for a large population. So if companies fail to make those retroactive payments correctly, that can lead to potential litigation, audits, penalties.

[00:10:56] It can lead to, it can impact the work environment, the morale there as well. And so that happened with Chipotle, Chipotle faced a class action lawsuit in 2019 for failing to pay employees back wages due to payroll errors, which ultimately, and which ultimately ended up being settling for $15 million. Isn't that crazy? Chipotle. Failure to comply with termination laws. We all know about that.

[00:11:24] Walmart was sued in 2020 for not paying severance to employees after layoffs, which led to a class action lawsuit and fines. It may depend on what was in the verbiage of the handbook. It could have been something in that case. Failure to audit payroll systems regularly. Sometimes you, we just trust that the system is going to update, trust that the third party provider is going to update the system for us. And sometimes they don't.

[00:11:52] And Bank of America faced significant fines in 2019 for payroll errors that were not identified due to a lack of regular audits, which led to improper overtime payments for employees. So think about it. A setting in the system, it could just be a box that's not checked. Hey, everybody. It's Libby again with fearlessness. So what's fearlessness? It's that underlying grit that empowers us to forge ahead, even when hope seems distant.

[00:12:17] It's the courage to walk through those fires of hell, knowing that we're going to come out better and stronger on the other side. Stay tuned and learn how to get fearlessness. Or whatever. And because we didn't do our due diligence or we didn't press the third party or provider or the payroll provider to do due diligence and to check those things, it could lead to issues. 12, errors in the international payroll tax treaty application. We talked about it a little bit before with the international taxes.

[00:12:45] Number 13 is noncompliance with employee benefit plan reporting. So failing to meet deadlines or inaccurately reporting employee benefits like retirement plans can lead to issues. ExxonMobil faced penalties for failing to meet ERISA. I know Brian's one of the favorite words. Arrested the filing deadlines in 2020, which resulted in over $5 million in fines. Wow.

[00:13:10] And then the last one I have is we spoke on a little bit earlier with the remote workers, but this is one of the things here. And Netflix made headlines in 2021 when it miscalculated payroll taxes for employees who were remotely in different jurisdictions, which resulted in a costly tax readjustment. Because think about it, like the employer has to pay certain taxes, like certain sues and like it might be higher in a different state than the state that they're getting taxed for.

[00:13:36] And so, and if they, and depending on how long that went back, it could be substantial. If you've been doing that for five years and you have a large population, that could be tens of thousands, hundreds of thousands of dollars. Yeah. Yeah. So look, these things that could cost money, it could lead to a lot of costly things. And look, these are some well-known companies that were mentioned here.

[00:14:03] And so they've, and they've paid hundreds of thousands or millions of dollars in fees and penalties because they've made mistakes. Right. So these things do happen. All right, Brian. Before we sign off, here are a couple of quick things. Don't forget to follow. It's about payroll on LinkedIn. And it's about your paycheck on Facebook and TikTok. Thank you for being part of our payroll community. And thank you for being a part of this journey with us until the next time.

[00:14:32] Keep learning, keep growing. And most importantly, keep going.