Payroll errors are creating a significant administrative burden for employers, with mistakes involving time, attendance and expenses accounting for the largest share of reported errors, according to new research.
An EY analysis commissioned by Paycom Software estimates that these errors cost organisations $289,722 per 1,000 employees annually. The figure covers the cost of correcting errors and excludes potential compliance costs and other financial consequences.
The annual cost of time, attendance and expense errors has increased by more than $40,000 since 2022, highlighting the growing cost of payroll administration and rework.
Which Payroll Errors Cost Employers the Most?
The analysis identified several categories of payroll errors, with time, attendance and expenses recording the highest frequency.
The estimated annual figures per 1,000 employees were:
- Time, attendance and expenses: 1,139 errors, costing $289,722.
- Vacation, paid time off and sick leave: 721 errors, costing $255,252.
- Benefits: 503 errors, costing $162,213.
- Scheduled earnings and deductions: 410 errors, costing $157,540.
- Tax withholding and tax allocation changes: 229 errors, costing $157,214.
- Direct deposits: 159 errors, costing $51,948.
The figures suggest that errors involving working hours, expenses and employee leave can create a substantial amount of avoidable work for payroll teams.
Across the study, the estimated average cost of correcting an individual payroll error reached $339, nearly 20% higher than in EY's 2022 findings. Respondents also reported that errors occurred in approximately one in every five payrolls.
The Payroll Mistakes That Take the Most Time to Fix
Not all payroll errors require the same amount of effort to resolve.
Missing or incorrect time punches were identified as both the costliest and most time-consuming error. The analysis estimated that these mistakes account for $93,600 per 1,000 employees annually in combined direct and labour costs and require approximately 440 hours to resolve.
Other time-consuming errors included missing expense claims, uniform charge mistakes, sick leave that had not been entered and errors involving health savings plan setup.
Together, the five most time-consuming error types account for nearly 29 workweeks of correction time per 1,000 employees each year. This represents a considerable amount of time that payroll and HR teams could otherwise spend on employee support, process improvements and other operational priorities.
The report also found that payroll and HR teams receive an average of 30 employee questions per pay period, adding another layer of administrative work.
How HR and Payroll Teams Can Reduce Errors
The findings highlight opportunities for HR and payroll teams to address recurring mistakes at their source rather than repeatedly correcting them after payroll has been processed.
- Improve timekeeping accuracy. Clear procedures for recording working hours, approving timesheets and correcting missing punches can help reduce errors before payroll runs.
- Strengthen leave and expense workflows. Ensure that leave requests, expense claims and manager approvals are recorded accurately and transferred to payroll on time.
- Review recurring error patterns. Track the types of mistakes that occur most frequently and identify whether they stem from unclear processes, manual data entry, system configuration or incomplete employee information.
- Make employee information changes easier to verify. Changes to bank details, tax withholding, benefits and deductions should follow clear verification and approval procedures.
- Monitor employee queries. Repeated questions about payslips, deductions or leave balances may indicate that processes or communications need improvement. Reviewing these queries can help teams identify underlying problems.
Why Payroll Accuracy Matters to HR
Payroll errors affect more than administrative efficiency. Mistakes can create confusion for employees, increase pressure on payroll teams and undermine confidence in the accuracy of compensation.
For HR leaders, reducing these errors requires coordination across HR operations, payroll, finance, managers and employees. Accurate records, clear approval processes and regular reviews can help organisations reduce rework and provide a more reliable employee experience.
The research was based on responses from more than 500 payroll professionals at US-based companies with 250 to 10,000 employees. The 2026 figures are an inflation-adjusted update of survey data collected in 2022, so the results should be interpreted within that context.
Research source: EY analysis commissioned by Paycom
