Payroll Accounting: How to Avoid Mistakes and Ensure Accurate Calculation

Payroll accounting is one of the core financial processes in every company, directly affecting employee motivation, satisfaction, and legal compliance.

Accurate and correct payroll calculation not only ensures smooth organizational operations but also reduces the risk of legal violations or dissatisfaction in the workplace.

Payroll accounting is a key administrative process that directly impacts financial transparency and employee satisfaction. Accurate payroll accounting helps:

• Ensure legal compliance – Wages must be calculated and paid in accordance with the Labor Code of the Republic of Lithuania and other legal acts. Legal errors may result in fines or legal disputes.
• Increase employee satisfaction – Inaccuracies in salaries often lead to dissatisfaction, while correct calculations build trust in the employer.
• Reduce costs – Efficient process management reduces expenses related to correcting errors and saves time.
• Optimize operations – Well-organized payroll accounting helps monitor financial flows and make informed business decisions.

Payroll accounting is regulated by legal acts, including the Labor Code, Sodra (social insurance), and Personal Income Tax laws. These laws define:

• Payroll calculation – Procedures for calculating wages, bonuses, compensations, and other payments.
• Tax and contribution calculation – Including social insurance contributions, personal income tax (PIT), and other taxes and declarations.
• Declaration submission – Reports and declarations submitted to Sodra and the State Tax Inspectorate (VMI).

Companies and individuals engaged in business activities are responsible for ensuring that payroll accounting complies with these requirements and that data is processed accurately and on time.

Working time accounting is mandatory, as it allows for proper payroll calculation and ensures that wages reflect actual hours worked. Key aspects include:

• Work schedule – Clearly defined working and rest hours.
• Recording work hours – Including overtime, night shifts, and work on weekends or holidays.
• Electronic accounting systems – Automated systems like Rivile MGAMA help accurately record time and reduce the risk of errors, especially during income declaration.

Payroll calculation includes the following key elements:

• Base salary – As stated in the employment contract.
• Bonuses and incentives – Calculated according to the company’s motivation system.
• Overtime – Compensated additionally according to legal regulations.
• Public holidays – Paid at double rate.
• Vacation pay and other benefits – Calculated based on average earnings.

It is important to follow legal requirements and ensure that each calculation step is based on reliable data.

Payroll accounting is inseparable from tax calculation. This includes:

• Personal income tax (PIT) – Calculated based on salary and applicable non-taxable amounts.
• Social insurance contributions – Covering pensions, health insurance, and other mandatory contributions.
• Declaration submission – PIT declarations are submitted to VMI, and social insurance reports to Sodra.

• Inaccurate time tracking – Often caused by manual data entry.
• Incorrect bonuses or incentives – Due to lack of a clear calculation system.
• Mismatched declarations – Caused by incorrect data submission.
• Manual accounting errors – High error rate if processes are not automated.

Mistakes can be avoided by using modern accounting systems like Rivile ERP or Rivile MGAMA.

Automated payroll systems like Rivile MGAMA offer the following benefits:

• Accuracy – Automated calculation of salaries, taxes, and contributions.
• Efficiency – Reduced need for manual work saves time.
• Data analysis – Integrated tools help monitor expenses and plan future budgets.
• Legal compliance – Systems are automatically updated according to current laws.

These systems ensure efficient accounting and minimize the risk of errors.

How is payroll calculated? Payroll calculation involves several key steps:

• Base salary – The amount specified in the employment contract.
• Additional bonuses – For overtime, night work, holidays, plus performance bonuses.
• Tax deductions – PIT and social insurance contributions.
• Non-taxable income amount (NPD) – Deducted from taxable income if applicable.
• Final amount – The net salary received by the employee.

Example: If the base salary is €1200 and overtime bonuses are €200, the total taxable amount is €1400. After deducting PIT and social insurance, the employee receives the net amount.

How to properly track working hours? Accurate time tracking is essential for correct payroll. Key steps:

• Create a work schedule – Clearly define working and rest hours.
• Record working hours – Including overtime, night shifts, and holidays.
• Track leave and sick days – Register vacation, illness, or other absences.
• Use electronic systems – Automate the process and reduce errors.

When should payroll declarations be submitted?

• Monthly – Social insurance declarations to Sodra by the 15th of the following month.
• Annually – PIT declarations to VMI by May 1 of the following year.
• Other obligations – Companies must follow specific rules based on employment contracts.

How to manage payroll documents?

• Invoices and records – Keep employment contracts, time sheets, and payroll records.
• Electronic archive – Use cloud solutions for secure and accessible storage.
• Stay updated – Ensure documents are regularly updated according to legal changes.

What software should be used for payroll accounting? Choose software that:

• Automates processes – Like Rivile ERP for time tracking, payroll, and declarations.
• Complies with laws – Ensure regular updates to reflect legal changes.
• Provides analytics – Monitor salary structure and optimize costs.

What mistakes should be avoided in payroll accounting?

• Inaccurate data – Manual entry of hours or leave can cause errors.
• Incorrect tax calculation – Can lead to legal and financial issues.
• Late declarations – May result in fines.

Automated systems reduce error risk and allow focus on strategic tasks.

How to ensure payroll compliance with legal regulations?

• Monitor legal changes – Regularly check updates from VMI and Sodra.
• Use reliable software – Rivile MGAMA updates features based on current laws.
• Conduct internal audits – Periodically check processes for accuracy.

Legal compliance helps protect the company from potential legal issues.