Payroll Mistakes That Could Be Costing Your Business in 2025

Payroll errors are more common than most businesses realize. With new labor laws in place for 2025, many companies are unintentionally misclassifying employees, mishandling overtime, or missing key compliance requirements—all of which can lead to costly mistakes.

For employees, these errors can mean missed pay, incorrect overtime, or untracked benefits. For employers, a simple payroll oversight can create back pay issues, employee frustration, and unnecessary legal risk.

The good news? Most payroll mistakes are preventable with the right policies in place.

Common Payroll Mistakes Businesses Are Making in 2025

Payroll is more than just clicking "pay" in your system. The small details matter—from tracking overtime correctly to making sure employee classifications align with job duties. Here are some of the biggest mistakes businesses should watch out for:

1. Misclassifying Employees (Salary vs. Hourly)

Many employers assume that if they pay someone a salary, they’re automatically exempt from overtime. That’s not always true.

Under 2025 labor laws, an employee must meet both the salary threshold AND the job duties test to be classified as exempt. If an employee’s role doesn’t fit the legal definition of "exempt" status, they must be classified as hourly, which means they’re entitled to overtime pay.

🔹 Quick Check: If you have salaried employees making below the 2025 minimum salary threshold in your state, they might need to be reclassified.

2. Overtime Errors: Rounding, Incorrect Calculations, and Missed Premiums

Overtime laws can get complicated, especially in states like California where OT is calculated both daily and weekly. Some common mistakes include:

• Rounding errors: Payroll systems automatically round up/down hours, which can underpay employees over time.

• Incorrect weekly overtime calculations: Some businesses don’t track the workweek correctly, causing OT miscalculations.

• Missed meal and rest break premiums: In states like California, if an employee skips a required meal break (or doesn’t waive it in writing), they are owed an additional one hour of pay—even if they didn’t request a break.

🔹 Quick Check: If your payroll team doesn’t factor in daily overtime, meal premiums, or rounding rules, you might be missing payments.

3. Payroll Processing Delays & Mismanaged Accruals

Not every payroll issue is about misclassification—sometimes it’s just about timing.

Some businesses run payroll late, skip payments, or forget to process wage increases in a timely manner. Others don’t track sick leave, PTO, or bonuses correctly, leaving employees unsure of what they’ve earned.

🔹 Quick Check: If you don’t see your sick leave or PTO balance on your paystub, it may not be properly recorded.

4. Relying on an Accounting Team That Doesn’t Specialize in Payroll

Many small businesses outsource payroll to a bookkeeper or accounting firm, but not all accountants specialize in labor law compliance.

🔹 Quick Check: Does your payroll provider understand how overtime, meal premiums, and sick leave work in your state? If not, it's time for an HR review.

What Employers & Employees Should Do Now

For Employers:

✔️ Review employee classifications—do salary employees meet both the duties and pay test?
✔️ Check payroll settings—are overtime, meal premiums, and PTO balances correctly applied?
✔️ Train managers—ensure they understand when OT and sick leave apply.
✔️ Audit payroll records quarterly—spot and fix errors before they become bigger problems.

For Employees:

✔️ Review your paystub—do you see sick leave, PTO, and overtime tracked correctly?
✔️ Check your job classification—are you being paid hourly when you should be?
✔️ Ask about meal premiums—if you work in a state like California, check if missed breaks are being compensated.

Final Thoughts

Payroll mistakes aren’t just a compliance issue—they affect employee trust, financial accuracy, and business operations. Small errors today can lead to bigger payroll corrections later.

The best approach? Regular payroll audits and clear communication between employers and employees. If you’re not sure whether your payroll system is working the way it should, now is a great time to take a closer look.

If you need support ensuring payroll compliance, let’s connect.