Payroll is prone to mistakes. With so many moving parts and different elements involved, something is bound to go wrong eventually. While it may seem near-impossible to eliminate all of your payroll slip-ups, many of these issues can be addressed, managed, and kept to a minimum. How? By implementing tools designed to take the burden off your payroll staff.
With payroll issues costing FTSE-listed companies between £10m and £30m per year, one can only imagine the heavy price that under-resourced, smaller businesses are paying across the UK every year. From missing tax deadlines to errors leading to employees being over- and underpaid, payroll mistakes can have a knock-on effect throughout an organisation, damaging morale and costing money.
We look at some of the most common payroll mistakes that plague HR departments and explore a practical solution that has the potential to turn your payroll into a lean, HR machine.
Let’s begin with a question – why is payroll so prone to issues and flaws? Apart from the complexities of the modern payroll process, human error, evolving payroll dynamics, and legislation changes can all contribute to discrepancies and payroll problems.
Regardless of the reasons, watching out for the most common payroll mistakes is the first step in streamlining your payroll operations. That being said, here’s the first pitfall to look out for:
Missing tax deadlines is among the most frequently cited payroll mistakes. It’s a serious problem and can lead to significant consequences for both the employer and employee. It is the responsibility of payroll teams to keep employees apprised of these important dates and to ensure that finance sticks to them.
HMRC lists important dates for businesses to make their tax submissions every year. Missing these deadlines can lead to the institution imposing penalties on the company (and, sometimes, even on individual payroll officers and the executives themselves).
If a company misses their tax deadlines, HMRC may impose a 'percentage of lost revenue' penalty ranging from 1% to 100%, depending on how much negligence it places on the part of the company.
Nothing chases employees away from a company faster than being paid late. As many as 21% of employees who quit their jobs cite "being paid late" as the reason for moving to another company. Problems like this may quickly cause management to lose faith in their payroll teams and can lead to a problematic relationship developing between staff and payroll.
Besides leading workers to wonder if their employers can actually afford to pay them, missed paydays as a result of payroll issues damages morale. They also create unnecessary stress, force employees to defer their own payments, and can cause potential talent to give your company a wide berth.
Maintaining accurate records is a critical requirement for any business. So important is this need, in fact, that UK business law requires most companies to maintain usable records that date back at least three years, and, in some cases, six. These records may include who previously and currently works for your company, the number of hours worked, payment dates, and salaries.
Keeping reliable records goes far beyond legal compliance needs, too. They serve as crucial backups a company can turn to in the event of a loss of critical data. They are also essential if HMRC needs to check and confirm tax compliance, and function as proof of your company's employee history.
Unfortunately, many businesses have shambolic track records when it comes to storing and sustaining payroll data. Many still rely on paper-based documents and reports, dating back decades, and long-outdated tools for keeping them. This can lead to payroll mistakes going unnoticed for years, and when they are eventually spotted, to hundreds of hours spent trying to figure out the source of the problem.
Benefits are critical in keeping top-notch employees at a company, with up to 75% of them stating that they're more likely to stay put because of company benefits programs. Still, additional employee benefits can become a payroll minefield if not managed properly. Staff remuneration includes more than just salaries. Think of maternity leave, insurance, allowances, commission, and bonuses offered by many businesses today.
Often, these benefits can be easily overlooked, especially since many of them are constantly shifting and changing. The main challenge here is that employees themselves need to claim the correct benefits and back them by relevant authorisation.
Employee classification across the globe has a spotty record. Where some companies have taken advantage of labour-law loopholes, others are paying the price for genuine oversights and mistakes.
Different employee contract types in the UK are subject to different payroll requirements. For instance, it can sometimes get tricky to tell a contracted staffer apart from a freelancer or a full-time, formally contracted worker from a part-timer.
Different employees have different rights and duties. They are entitled to various benefits and might even receive different pay structures. It can be challenging for payroll teams to keep up with the dynamically changing team setup. As a result, they are often misinformed about the range of contract types an employee can work under.
Legacy tools have been around for ages. Often, decision-makers who aren’t working on the payroll frontlines are happy to keep things the way they are. The problem here, however, is that many payroll legacy tools were built long before modern HR software was designed.
Outdated tools, purpose-built for basic payroll functions, are notoriously difficult to integrate with modern HR software resources. The result? Finance teams are often forced to work on various systems simultaneously, and this is where many mistakes tend to pop up.
Another employee-satisfaction nemesis is incorrect amounts appearing on payslips. Contrary to popular belief, overpaying an employee is not necessarily going to make them happy. Instead, once – or even if – they spot the problem, they’re required to bring it to your attention. This leads to an arduous, inconvenient process in paying the money back or having it docked from a future payslip.
The same goes for salary underpayments. Employees who don't receive their full, entitled pay will immediately (and understandably) fly into a rage, throwing employee-payroll relations into chaos.
The damage that comes from this mistake is two-fold: employees lose faith in payroll, and the company loses money or illegally underpays their staff. Either way, getting pay amounts wrong is a big no-no.
Almost every payroll mistake begins with incorrectly entered data. Whether it’s a new team member punching in the wrong numbers, or a veteran manager overlooking a simple formula, even the slightest error can snowball into a huge problem.
The consequences of payroll data errors can be devastating, as seen with Tesco’s 2017 ‘technical error’ blunder that cost the retailer £9.7m in repayments.
Incorrect data entries are unavoidable, but their rate of occurrence can be minimized.
Anyone working in payroll will tell you – manual payments are the bane of the HR profession. As they’re time-consuming and prone to errors, they can cause enormous stress among all stakeholders.
Employees have to wait for fixes and delayed payments, while – in the worst case scenario – HMRC will issue fines and penalties.
Thankfully, automated payroll software solutions like Pento solve the problems triggered by manual payments and help avoid countless other payroll mistakes.
While HR’s Holy Grail – eliminating payroll mistakes and errors altogether – may be out of reach, it is possible to significantly reduce their frequency and severity. Many companies have already seen the raft of benefits that modern payroll software solutions like Pento can bring to the table.
Besides offering tremendous benefits in the way of reducing workload, they also eliminate the need to outsource payroll and help save money.
By removing human error miscalculations and allowing payroll mistakes to be fixed on the spot, stress and costly errors are instantly and effectively minimized. Pento renders third-party payroll and deadline constrictions moot, while empowering HR teams to get the job done quickly, efficiently, and seamlessly.
Due to its complex nature and changing requirements, payroll mistakes are bound to happen. The silver lining, however, is that we now have access to tools that minimise how often payroll errors happen. With the right solution, you’ll also be able to identify and nip the few mistakes that do happen before they become actual crises. Switching to a modern cloud-based tool like Pento allows HR teams to do their jobs better and more efficiently.