One of the most frequent mistakes companies make is miscalculating overtime pay for nonexempt employees. While laws vary by state, under the Fair Labor Standards Act nonexempt employees are entitled to overtime pay at a rate not less than time and one-half their regular rate of pay for hours worked over 40 in a workweek. Employers sometimes mistakenly average hours over multiple weeks, assuming that a 60-hour first week and a 20-hour second week balance each other out. However, overtime must be calculated weekly, so in this scenario, the employee is owed overtime for the first week.
Retroactive payment errors are another common issue. If an employee was underpaid in a previous pay period, the employer must reconcile the difference by issuing retroactive pay. How the employer fixes the mistake varies from state to state as well as from payroll provider to payroll provider, so be sure to check with your human resources department for the correct procedure.
New hires sometimes experience delays in receiving their first paycheck if the payroll cycle had begun prior to their start date. While employers may wait until the next scheduled payday, they
cannot withhold the first paycheck entirely, only delay it based
on the payroll system. In such cases,
the employee should receive their full owed wages, including for any additional days worked beyond the first cycle.
Errors in benefits deductions (especially if changes occur midyear) can result in employees receiving incorrect pay.
If an employee was paid too much due to a bookkeeping mistake, an employer can deduct the overpaid amount from future wages — as long as the wage does not drop, even temporarily, below the federal minimum wage. If the deduction would cause this hardship, you should spread the repayments out over time.
Business expense reimbursements can also cause miscalculations. Under the FLSA, employers are not required to reimburse work-related expenses unless those expenses bring an employee's pay below minimum wage. Having a clearly defined reimbursement policy can help prevent disputes.
Special payroll considerations
If employees are on medical leave, the employer must observe the provisions of the Family and Medical Leave Act and the Americans with Disabilities Act.
Failing to pay agreed-upon wages — including delaying paychecks or failing to pay earned vacation time — can be considered wage theft. Similarly, employers who consistently miss payments or issue checks that bounce may be held legally liable.
If an employee agrees to a paycheck deferment, the employer must be sure that the deferment does not violate wage payment regulations.
Because payroll errors can be costly and legally complicated, businesses should review both federal and state laws and consult with HR experts to ensure compliance. Establishing clear payroll policies, tracking payments carefully and addressing errors promptly can help prevent financial and legal risks while maintaining employee trust.