5 Most Common Payroll Errors and How to Avoid Them

Accurate payroll calculation is a "hygiene factor" for any company. When salaries are paid on time and correctly, employees take it for granted. However, the moment an error appears – whether it’s incorrectly calculated vacation pay or a "missing" tax allowance – it immediately erodes trust in the employer. Furthermore, for the State Revenue Service (SRS) and the State Labour Inspectorate (SLI), errors in calculations are grounds for penalties.

In accounting software, it is often a matter of "checking" the right settings, and the human factor plays a major role here. Let’s look at the 5 most typical mistakes faced by companies in Latvia.

1. Incorrect Calculation of Average Earnings

This is a "classic." Average earnings are used to calculate vacation pay, sick pay (Certificate A), and compensation for unused vacation upon termination.

• The Error: Simply using the current month's salary or an incorrect number of days in the period.

• The Correct Way: Average earnings must be calculated based on the last 6 calendar months. There are nuances – if an employee was sick or on vacation during this time, those days and amounts must be excluded from the calculation. If the calculation is incorrect, the employee receives less (risk of a complaint) or more (loss to the company) than they are entitled to.

2. Application of the Differentiated Non-taxable Minimum

Since the introduction of the differentiated non-taxable minimum, a "fixed" amount no longer exists. The SRS announces the predicted minimum twice a year, but it can change depending on the employee's income.

• The Error: Applying an incorrect or outdated non-taxable minimum, or failing to recalculate it if income has grown rapidly.

• The Correct Way: The accountant must regularly monitor data in the SRS EDS system. If an employee's income is volatile, it is safer not to apply the minimum at all to prevent the employee from owing tax to the state at the end of the year.

3. Errors in Overtime and Public Holiday Pay

The Labour Law stipulates that overtime and work on public holidays must be compensated with a supplement of at least 100%.

• The Error: Companies often confuse "weekends" (Saturdays, Sundays) with "public holidays" (e.g., November 18th). If an employee is scheduled to work on a Sunday, it is a regular working day. But if it falls on a public holiday – it must be paid double.

• The Correct Way: Different types of working time must be strictly distinguished. In the case of aggregated working time, overtime is calculated at the end of the reference period (e.g., once every 3 months), not every month, which often causes confusion.

4. Delayed Registration of an Employee with the SRS

This is an administrative but costly mistake.

• The Error: The employee starts working in the morning, but the accountant registers them in the SRS EDS in the afternoon or the following day.

• The Correct Way: Information about the employee must be submitted to the SRS no later than one hour before the employee begins work. If an inspection occurs and an employee is working but not registered in the system, it is considered unregistered employment, which carries severe penalties.

5. Ignoring the "Payroll Tax Booklet" status

Tax rates and allowances depend directly on whether the employee has submitted their payroll tax booklet to the specific workplace (marked it in the SRS EDS).

• The Error: Applying allowances (for dependents or the non-taxable minimum) to an employee who has not submitted their tax booklet to the company.

• The Correct Way: If the booklet is not submitted, Personal Income Tax (PIT) is applied from the first euro, and the non-taxable minimum is not applied. We must always verify the current status before performing the payroll calculation.

Conclusion

Payroll accounting is not just math – it is continuous monitoring of legislation. One careless mistake can trigger a chain reaction requiring corrections in reports, explanations to the SRS, and recalculations for employees.

Amberfy specialists work with hundreds of payroll calculations daily, so we know all these nuances. By outsourcing your payroll to us, you guarantee accuracy and peace of mind for your business.