Payroll mistakes in medical offices are surprisingly common and surprisingly costly. According to Ernst & Young, one in five U.S. payrolls contains errors, with an average cost of $291 per mistake. For large health systems, that might be a rounding error. But for small and independent medical or dental practices, repeated payroll mistakes can quickly drain resources and damage trust.
Smaller healthcare practices face unique challenges when it comes to payroll. They often juggle tight budgets, lean administrative teams, and complex compliance demands. Staff may wear multiple hats, and time tracking, tax rules, and employee classifications aren’t always straightforward.
Fortunately, most payroll errors are avoidable with the right preparation and systems in place. Here are five common mistakes and how to avoid them.
Employee classification is one of the most misunderstood aspects of payroll compliance, and it’s especially tricky in healthcare. Roles like receptionists, nurses, and full-time medical assistants are almost always classified as employees. That means you’re responsible for withholding payroll taxes, providing workers’ compensation coverage, and following all applicable wage and hour laws. These employees receive regular paychecks and a W-2 at year-end.
On the other hand, professionals who work independently and serve multiple clients, such as per-diem dental hygienists or travel nurses, may qualify as independent contractors. They’re paid according to the terms of their contracts and receive a 1099 if they earn $600 or more in a year.
Don’t assume that flexibility or remote work automatically equals contractor status. Misclassifying workers can lead to tax penalties, wage disputes, and insurance issues. These errors can cost your practice far more than just back pay.
Overtime is another area where small practices often trip up, especially when employees shift between roles or hours vary from week to week. Unlike large hospital systems with full HR departments, smaller offices often rely on generalists managing payroll alongside other duties.
Federal law requires overtime pay for eligible employees working over 40 hours per week. Some states go further, particularly for healthcare workers who are on call or work split shifts. If your team includes part-timers who occasionally work full time or take on-call hours, you’ll need to track and pay them accordingly.
Failure to do so can result in fines, back pay obligations, and employee dissatisfaction. Automated systems with built-in compliance safeguards can take the guesswork out of these calculations.
Paid time off and benefits are heavily regulated in some states. California, New York, and others require employers to provide and track a minimum amount of paid sick leave, with additional requirements for parental or medical leave.
Small medical and dental offices that rely on spreadsheets or paper records often struggle to keep accurate benefit accruals. Mistakes here can compound over time. Failure to comply can result in penalties or even legal claims.
A digital time and labor system ensures accurate accruals, proper leave tracking, and an auditable trail if you’re ever asked to prove compliance.
Doctors and dentists must manage quarterly and annual payroll tax filings at both the federal and state levels. Filing late or incorrectly can trigger audits, penalties, or delays in financing and insurance renewals.
Even honest mistakes can create expensive bottlenecks. You might owe back taxes, interest, or fines regardless of intent.
A payroll system built for small medical practices will streamline these processes and help ensure every filing is submitted correctly and on time. This allows you to focus on your patients, not paperwork.
Paper timesheets and printed pay stubs may seem simple, but they pose serious risks. Manual systems are prone to loss, difficult to audit, and susceptible to tampering. If a flood, fire, or cyber incident occurs, those records may be lost forever.
Today’s employees also expect digital access. They want to view their pay history, clock in securely, and update their information from anywhere.
Modern, cloud-based payroll systems offer secure self-service tools, real-time access to payroll records, and disaster recovery features. These protect your business and support compliance.
Payroll mistakes aren’t just an administrative hassle. They can erode employee trust, increase liability, and threaten your practice’s bottom line. Avoid the most common pitfalls with a payroll system designed for the unique needs of independent healthcare providers.
See how Workforce PayHub helps medical and dental practices stay compliant, efficient, and secure.