Recent analysis by EY reveals that the average cost to rectify a payroll error has increased to $339, marking a significant rise from previous years. This finding comes from an updated study commissioned by Paycom Software, Inc. (NYSE: PAYC), a prominent provider of cloud-based human capital management solutions. The 2026 figures, adjusted for inflation, show a nearly 20% increase from EY's 2022 data1.
Payroll errors are not uncommon, with respondents indicating that such errors occur in one out of every five payrolls. This frequency underscores the potential for costs to accumulate rapidly. Chad Richison, founder and CEO of Paycom, emphasized the importance of preventing errors, stating, "The best payroll error is the one that never happens." Paycom aims to achieve this through automation, which helps prevent errors before they impact employee paychecks, ensuring accuracy.
Paycom's automated payroll system, Beti®, has demonstrated effectiveness in reducing the time required to correct payroll errors by 85%. Beti® is designed to automatically detect discrepancies and guide employees in resolving them prior to payroll submission. Additionally, Paycom's software employs decision-making logic that extends automation beyond simple tasks, applying predefined business rules to routine decisions. This approach reduces manual work and enhances consistency across human resources and payroll functions2.
The most prevalent types of payroll errors involve time, attendance, and expense issues, occurring 1,139 times annually per 1,000 employees. EY estimates these errors cost organizations $289,722 per 1,000 employees each year, an increase of over $40,000 since 2022. These figures focus solely on the cost of payroll errors, excluding potential compliance costs or other financial repercussions3.
In the realm of human capital management, errors in payroll processing can have a ripple effect, impacting employee satisfaction and trust. Accurate payroll is crucial as it directly affects employee morale and retention. Errors can lead to dissatisfaction and even legal challenges if not addressed promptly. Therefore, organizations are increasingly turning to automated solutions like Paycom's to mitigate these risks.
Paycom's Time-Off Requests feature, GONE®, is designed to minimize time and attendance errors. By using decision-making logic to automate time-off decisions based on client-defined criteria, approved requests are seamlessly integrated into payroll, reducing the need for manual intervention and preventing downstream payroll errors.
The report also highlights the most time-consuming payroll errors, such as missing or incorrect time punches, missing expenses, uniform charge errors, unentered sick time, and health savings plan setup errors. Missing and incorrect time punches are the most expensive errors, costing an estimated $93,600 per 1,000 employees annually in combined direct and labor costs. These errors are also the most time-consuming, requiring approximately 440 hours per year per 1,000 employees to resolve. Collectively, the five most time-consuming errors demand nearly 29 workweeks per 1,000 employees to correct each year, equating to over six months of lost staff time annually. This time could be better spent on higher-value business initiatives.
The EY report is based on responses from over 500 survey participants with payroll responsibilities at U.S.-based companies employing between 250 and 10,000 people. This broad sample provides a comprehensive view of the challenges faced by organizations of various sizes in managing payroll effectively.
Paycom Software, Inc., a cloud-based human capital management software provider, offers organizations the ability to automate numerous HR and payroll tasks through its employee-first technology. By utilizing a single database, Paycom's comprehensive automation manages the entire employment life cycle, streamlining processes and enhancing data accuracy. With its industry-first AI engine, IWant™, Paycom delivers instant access to precise employee data, eliminating the need for users to navigate or learn the software. For over 25 years, Paycom has been recognized as a leading payroll and HCM solution by third-party reviewers.
Footnotes:
- The average cost to correct a payroll error has increased to $339, reflecting a nearly 20% rise from 2022. Source.
- Paycom's Beti® system reduces payroll error correction time by 85%. Source.
- Time, attendance, and expense errors cost organizations $289,722 per 1,000 employees annually. Source.
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