1. Miscalculation of Working Hours
Many companies still depend on the traditional punch card method to keep track of their employees’ working hours. These ‘older’ type of systems are not hooked up to any software and the only record is on the individual employee’s hour card.
Therefore, the HR or accounting department would have to manually tabulate these hours every month. Not only is this method laborious, but it is also extremely time consuming. Additionally, it’s often prone to mistakes as the data is entered manually.
2. Incorrect Classification of EmployeesLarge companies often have different classes of employees that are paid differently. For example, there are full-time employees that are paid a fixed amount each month and there are those that are paid hourly. There are even employees that work on a freelance or contract basis, as well as those who work independently.
3. Failure to Protect Past RecordsIn order to ensure that the company’s accounts are in order, payroll data needs to be well kept and protected. They will come in handy for internal and external auditing exercises. Many times, payroll data isn’t backed up properly by the accounting or administration department. This will lead to problems in data retrieval, such as in cases where there is a salary dispute between an employee and the company.
4. Failure to Protect Employee Confidentiality
Salary data should not be leaked to anyone outside the dedicated payroll executives and the upper management. Such data can compromise employee privacy and may be used against them in negative ways by outside forces, as well as internally. As such, there must be some measure of security on the payroll data to limit it only to those who need to know. A payroll software with limited access level can help minimise this risk.
5. Deducting the Wrong EPF RatesThe Third Schedule, EPF Act 1991 states that employees have to place ~11% of their wages into the EPF for employees aged under 60, ~5.5% for employees above 60. It is the duty of the payroll executives to determine the correct deduction rate for each individual employee. Some companies may not make correct EPF deductions for their employees and wrong amounts may be contributed towards their retirement fund. See this article for a thorough explanation of the different EPF rates.
6. Delaying Payment DeadlinesTimely payments are essential for every employee as they depend on their salary to pay their bills, loans and other expenditures. A slight delay in the payment deadline can spell trouble for many and it must, therefore, be avoided. One way to cut down delays in the payroll processing time is to reduce the red-tape, such as shortening the approval process.
7. Entering the Wrong Bank Account Numbers
In certain cases, payroll executives can make mistakes when entering the bank account details for certain employees. This can happen as account numbers are often entered manually. This is one problem that only gets detected after the payment has been made and it requires extra work to retrieve the money.
8. Not Having Regular Payroll AuditsInternal and external payroll audits should be done regularly in order to avoid any unintentional mistakes in the system, such as problems in data entry. Additionally, audits are able to prevent potential fraud whereby employee details or remuneration might not be entered accurately.
9. Not Recording OvertimeEmployees who fall under the Employment Act (e.g. wages not exceeding RM2,000, manual labourers) should be properly compensated if they work extra hours. Overtime rates vary depending on if the overtime is during normal work days, rest days or public holidays as well as during or outside normal working hours. Usually, these are used as a guideline for other staff as well. A detailed explanation on overtime rates can be found here.
10. Incorrect Payment of TaxesAll companies are required by the Income Tax Act to make the necessary deductions from salaries payable and forward them as the individual’s personal income tax. The calculations for each individual employee has to be carried out according to the amount that they earn and the formula provided by the Inland Revenue Board of Malaysia.
Payroll executives have to be meticulous: not to deduct too much or too little from the salaries of each employee. In Malaysia, this tax deduction is known as Potongan Cukai Bulanan (or PCB) and is a monthly deduction from employees salaries.
You can use this free e-PCB calculator to help you determine the individual employee’s PCB rates. This online PCB calculator will save you the hassle of having to manually calculate and therefore prevent more mistakes. Solving the PCB calculation has never been easier and you’ll thank yourself for giving it a try.