Errors which may occur during payroll processing can lead to huge problems ranging from inaccurate payroll allocation to financial losses and poor company reputation. Most businesses can’t afford unnecessary fees or expenses that may occur due to payroll errors.

Therefore, it is important to be aware of payroll risks and familiarize yourself with the basics of payroll. It’s equally important to take the necessary steps and measures to know how to avoid these mistakes.

Below are some risks to avoid when running your payroll:

  • Inaccurate overtime exemptions: This happens when you fail to analyze both federal and state laws, and assume that all salaried employees are exempted. It also occurs when companies don’t check employee’s qualification for exemptions.
  • Misclassifying employees: Payroll errors are likely to happen when you misclassify employees as independent workers and assign contractors tasks that are meant for employees.
  • Noncompliance: Setting payroll for employees at the wrong rates, missed deadlines, and mismanaging payroll documents are possible errors that could occur and can lead to hefty penalties.
  • Incorrect records: When it comes to running payroll, incorrect recording can be one of the biggest mistakes that can cost a company. This inaccuracy may end up with single incorrect paycheck or inappropriate wages allocation.
  • System failure or data loss: Some payroll systems do not have a backup system; hence data can be lost which can lead to mistakes in the payroll system. To avoid such risk, ensure you have the right back up system and test it before use.


Payroll risks and errors can occur anytime if you are not keen on checking and confirming the payroll data before your start the payroll process. Some of these risks include inaccurate overtime exemptions, misclassifying employees, non- compliance, incorrect records and system failure.