Open enrollment is a critical time for both employers and employees. It’s the period when employees can make changes to their benefits plans—whether it’s health insurance, retirement contributions, or other voluntary benefits. For payroll administrators, it can also be a complex period, with many moving parts that need to be accurately reflected in each employee’s paycheck.
Payroll mistakes during this time can lead to unhappy employees, compliance issues, and potential financial losses for the company. To help you navigate this critical period smoothly, here are some common payroll mistakes to avoid during open enrollment, and how to prevent them.
1. Failing to Update Payroll with New Benefits Information
One of the biggest pitfalls during open enrollment is failing to update your payroll system with the correct information about employees’ benefits choices. Whether it’s new health insurance options, different contribution levels for retirement plans, or changes in voluntary deductions like disability or life insurance, all these selections need to be accurately reflected in payroll deductions.
How to Avoid This Mistake:
Coordinate closely with your benefits provider to ensure the updated selections are received and properly entered into your payroll system. It’s also a good idea to run a “test” payroll or simulate different employee choices to see how they will impact the actual payroll. Reviewing these before processing real payroll can help catch errors before they reach an employee’s paycheck.
2. Incorrect Tax Calculations on Benefits
Another common issue during open enrollment involves incorrect tax calculations for certain benefits. For example, health insurance premiums and contributions to retirement accounts (like a 401(k)) are often pre-tax. In contrast, other benefits, such as certain types of life insurance, may be post-tax. Getting these deductions wrong can create tax issues for both the company and the employee.
How to Avoid This Mistake: Take the time to double-check the tax status of all employee benefits and ensure that your payroll system correctly categorizes each deduction. It’s also useful to keep abreast of any changes in tax laws that might affect benefit deductions, especially since these laws can change from year to year.
3. Misclassifying Employees or Benefits Eligibility
During open enrollment, it’s essential to ensure that all employees are classified correctly, and that only eligible employees receive certain benefits. Misclassifying employees, especially part-time or temporary workers, can lead to offering benefits they aren’t entitled to, or even worse, failing to provide benefits to eligible employees. This can result in compliance violations with laws like the Affordable Care Act (ACA) and costly penalties.
How to Avoid This Mistake:
Perform a detailed review of your employee classifications and their eligibility for various benefits. Ensure that your HR and payroll systems are in sync regarding who qualifies for what. If you’re unsure, consult your benefits provider or legal counsel to ensure you’re in compliance with federal and state laws.
4. Missing Important Deadlines
Deadlines are critical during the open enrollment period. Missing a deadline for submitting benefits selections can lead to employees being stuck with the wrong benefits for the entire next year. Similarly, missing payroll deadlines for processing new deductions or changes can create chaos with both benefits providers and employee paychecks.
How to Avoid This Mistake:
Create a clear, shared calendar that outlines all critical open enrollment deadlines for your internal team and employees. Ensure that employees are informed well in advance of any upcoming deadlines, and keep the lines of communication open to help them through the process. Having clear internal deadlines for payroll adjustments can also help your team stay on track.
5. Inaccurate Communication with Employees
It’s common for employees to get confused during open enrollment, especially if there are new benefit options or significant changes. Poor communication about how these changes will affect payroll deductions can lead to frustration and confusion, with employees not fully understanding why their paychecks look different after enrollment ends.
How to Avoid This Mistake:
Make communication a priority. Provide clear, accessible information about how open enrollment decisions will impact payroll. Regular updates through email, meetings, or your company’s internal communication platform can help clarify questions before they become problems. You might also want to create a FAQ document that answers common questions about benefits changes and payroll deductions.
Conclusion
Payroll mistakes during open enrollment can lead to significant problems, but they are avoidable with the right strategies. By staying organized, verifying information, communicating clearly, and working closely with your benefits providers, you can ensure that your employees’ choices are accurately reflected in their paychecks.
Avoiding these common payroll pitfalls during open enrollment will help keep your employees and payroll department happy and compliant as you head into the new year.
For additional resources, check out these links:
Open Enrollment Best Practices
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