Legislative changes, manual entries of supplements and incentives, new calculations after the salary review... The procedures regarding salary payments to employees can be complicated in several areas – even for the most experienced payroll employee.
Therefore, errors unfortunately occur in payroll administration. These can range from human errors, such as typos when entering supplements and commissions, to a lack of knowledge about the latest changes in collective agreements or legislation.
It can be difficult to fully guard against mistakes, as both systems and people can fail – but it is possible to reduce the number of errors and, in many cases, eliminate them entirely. By being aware of these six pitfalls, you will be well equipped to avoid the most common mistakes in payroll processes.
Salary payment pitfall 1: Typographical errors
If your company does not use time registration systems and still relies heavily on manual paperwork between employees, managers and payroll staff, the risk of errors during data entry increases significantly.
In many companies, hourly paid employees submit timesheets, which are checked by their team leader before being forwarded to the payroll department. There, a payroll employee enters the information into the system. With weekly timesheets, this can mean entering four different forms at the end of every month – a time-consuming process prone to mistakes.
When sick leave and holidays are recorded, this often involves forms and manual handling, which adds further risk.
Whether employees are paid hourly or monthly, these scenarios involve a risk of incorrect data entry – errors that can be costly, both financially and in terms of trust.
Practical solution: Prepare Excel templates
If paperwork plays a major role in your company’s payroll process, customised and user-friendly Excel templates can help structure the input from managers and employees. These templates can be passed on to payroll administrators, who can import the data directly into the payroll system. This reduces the risk of typographical and calculation errors and also streamlines the process.
Preventive control: The four-eyes principle
In many payroll functions, there are no control mechanisms or four-eyes policies in place. Introducing the 'four-eyes-on-everything' principle can be an effective way to ensure all payroll outputs are double-checked. Payroll is a sensitive and critical area – for both the company and its employees – so it's essential to clearly define who is responsible for approval and control. Is it a controller, a colleague, an HR manager, an accounting manager, or another senior role?
If such a principle is not already embedded in the culture, it can be a challenge to introduce it. Employees and departments might perceive it as surveillance. That’s why it is crucial to communicate that this initiative is about quality assurance and error prevention – not monitoring.
Salary payment pitfall 2: Agreements
Collective agreements contain numerous rules relating to pay and working conditions. This applies whether the company has entered into a local agreement directly with a trade union or follows a national or industry agreement through an employers' association.
These agreements are often supplemented by legislation – for instance, in areas such as health and safety, sick pay, and parental leave pay. It is therefore essential for payroll professionals to stay informed and process salaries accordingly.
Solution in several steps: Payroll system – access to knowledge – external supplier
The most effective solution is to configure the payroll system so that it automatically accounts for the terms in individual collective agreements. Additionally, ensure that payroll staff are continuously updated on changes to collective agreements and relevant legislation. Regardless of your payroll system setup, it's crucial that payroll employees have insight into the agreements that apply within the company – making access to up-to-date knowledge a priority.
Another option is to collaborate with an external payroll provider that specialises in payroll administration and is well-versed in relevant legislation and regulations. They can manage all or part of the payroll process for your organisation.
Salary payment pitfall 3: Legislative changes
Each year, the EU and national parliaments introduce new rules that can affect employee salaries and benefits. These may include updates to the Holiday Act, changes in ATP rates, new rules regarding company phones, subsistence allowances, travel deductions, severance payments, pensions and insurance matters.
Solution: Knowledge + well-documented procedures
Knowledge and competence go hand in hand – especially in payroll. Payroll professionals must stay current with rules and legislation. Additionally, it is good practice to implement clearly written and regularly updated procedures. These help ensure all employees can understand and adapt to changes effectively.
Procedure documentation also enables backups or new team members to quickly understand how legislative changes should be interpreted and handled in the company’s payroll context.
Salary payment pitfall 4: Reimbursement of disbursements and expenses
Reimbursements – or advances made for travel or purchases at trade fairs, for example – can lead to misunderstandings between the payroll function and individual employees when these transactions appear on payslips. Issues may arise, for instance, when travel advances are paid or when deductions are made due to missing receipts.
Solution: Clear procedures + employee manual
The solution here is to establish well-written procedures in the employee manual that clearly define what is – and isn’t – covered during domestic or international work travel. For example, are hotel mini-bar expenses covered? What about TV usage, parking fees, or fines?
Grey areas or ambiguities often lead to misunderstandings and should be addressed clearly in the employee manual or other relevant internal policies.
Salary payment pitfall 5: Bottlenecks
Bottlenecks are a known issue – particularly in under-resourced areas such as payroll, HR, and finance. Many payroll employees are specialists and superusers, with few – if any – colleagues outside their team capable of stepping in during absences.
It’s a great advantage to have experts with in-depth knowledge, but what happens when that person is sick, on a course, or otherwise unavailable?
Solution: Backup + status meetings
Establishing internal or external backup support for the payroll function can reduce organisational vulnerability during staff absences. Additionally, hold regular status meetings to provide department-wide insight into the ongoing work, recent developments, and changes since the last update. These updates could include new legislation or adjustments to collective agreements relevant to specific employee groups.
Once again, well-documented procedures are key to ensuring correct salary processing – even when key employees are unavailable.
Salary payment pitfall 6: Salary output
After individual payslip input has been processed, the salary output must be passed on to the accounting or finance department. This information is then used for monthly accounts and shared with external stakeholders. These include the Danish Customs and Tax Administration, ATP, job centres, municipalities, and Udbetaling Danmark.
Many parties are involved in a single payroll process, and incorrect reporting to any of them can lead to errors in company accounts – such as incorrect holiday pay provisions or pension contributions.
Solution: Excel templates + cross-functional insights
Use Excel templates or system-generated reports to ensure data accuracy across all levels. Consider creating a cross-functional team of middle managers and employees from payroll and accounting departments, so everyone understands what data the next link in the chain requires.
This mutual understanding not only improves efficiency and accuracy but also reduces bottlenecks between departments.
Avoid pitfalls in salary payments
Whether you recognise one or more of the above payroll pitfalls, several practical solutions can help reduce – or even eliminate – errors:
- Prepare clear and well-structured procedure documentation
- Use well-designed templates, such as Excel, to reduce typos and streamline processes
- Introduce a four-eyes policy
- Define roles and responsibilities for approvals and controls
- Ensure internal or external backup for the payroll function
- Provide payroll employees with access to up-to-date information on legislation, agreements, and payroll developments
- Consider partnering with an external payroll expert.
Get expert help with payroll administration
If you need a professional sounding board for your payroll processes – or additional hands during peak periods – Azets’ experienced payroll consultants are ready to help. We provide an objective review of your current procedures and system setup. Often, you can optimise workflows without needing to invest in new systems or solutions.
