Payroll errors remain a significant challenge for businesses, creating financial costs, administrative pressure, and potential compliance risks for HR and payroll teams. A new analysis by EY, commissioned by payroll software provider Paycom, estimates that payroll errors cost organisations approximately $289,722 annually for every 1,000 employees in time, attendance, and expense-related mistakes alone.

The findings highlight how seemingly minor errors, such as incorrect working hours, missing expense claims, or inaccurate leave records, can create substantial costs when they affect large workforces.

The Most Common Payroll Errors

According to the analysis, time, attendance, and expense issues were the most frequent payroll errors, with 1,139 errors per 1,000 employees annually.

Other common categories included:

  • Vacation and sick leave errors: 721 errors per 1,000 employees annually.

  • Benefits errors: 503 errors per 1,000 employees.

  • Earnings and deductions errors: 410 errors per 1,000 employees.

  • Tax withholding and allocation errors: 229 errors per 1,000 employees.

  • Direct deposit errors: 159 errors per 1,000 employees.

These figures demonstrate how payroll accuracy depends on reliable employee records, correct calculations, and coordination between HR, finance, attendance, and benefits systems.

Why Time and Attendance Errors Are Costly

Missing or incorrect time punches were among the most time-consuming payroll issues identified in the report. Errors can occur when employees forget to clock in or out, managers approve inaccurate timesheets, or attendance data fails to transfer correctly into payroll software.

The report estimated that resolving missing or incorrect time punches takes approximately 440 hours per 1,000 employees annually, with combined direct and labour costs reaching $93,600.

These issues can also affect overtime calculations, shift allowances, and employee pay, making accurate attendance tracking essential for payroll teams.

The Impact of Payroll Errors on Businesses

Payroll mistakes can affect more than a company's finances. Incorrect or delayed payments can weaken employee trust, increase administrative workloads, and expose organisations to potential legal or regulatory consequences.

The EY analysis estimated an average correction cost of $339 per payroll error, nearly 20% higher than its inflation-adjusted 2022 findings. Respondents also reported an average of 30 employee questions per pay period, adding to the workload of payroll and HR departments.

Errors that remain undetected can create additional complications, particularly when they affect recurring payments, employee benefits, or statutory deductions.

How HR Teams Can Reduce Payroll Errors

Businesses can reduce payroll risks by improving processes and introducing stronger controls across the employee lifecycle.

1. Automate repetitive calculations. Payroll software can help calculate earnings, deductions, overtime, and leave balances consistently when configured correctly.

2. Integrate HR and attendance systems. Connecting employee records, time tracking, leave management, and payroll reduces duplicate data entry and mismatched information.

3. Review payroll before processing. Exception reports and approval workflows can help identify unusual payments, missing hours, and unexpected deductions before salaries are released.

4. Keep employee information updated. Changes to salary, benefits, tax details, bank accounts, and employment status should be recorded promptly and verified.

5. Conduct regular payroll audits. Periodic reviews help identify recurring errors, assess compliance, and correct problems before they affect more employees.

Why Payroll Technology Matters

Modern payroll and HR technology can help organisations improve accuracy, maintain records, and reduce manual work. However, automation alone cannot eliminate every error. Incorrect source data, outdated rules, poor system configuration, and insufficient oversight can still lead to inaccurate payments.

Businesses should combine reliable technology with trained payroll professionals, clear responsibilities, and regular checks.

Conclusion

Payroll errors are often caused by everyday administrative issues, but their cumulative impact can be substantial. Accurate attendance records, integrated systems, reliable employee data, and consistent payroll reviews can help organisations reduce rework and strengthen employee confidence.

For HR leaders, payroll accuracy is not simply an administrative responsibility. It is an important part of employee experience, operational efficiency, and workforce compliance.