The 8 Common Mistakes Companies Make When Doing Payroll

18th September 2020

The monthly payroll is something that most businesses have to do, and it’s important to get it right. There is a lot to know about payroll, and small mistakes made by someone in the payroll department could lead to underpaying or overpaying employees or failing to meet the regulations – which could lead to fines. Here are eight of the most common mistakes to avoid.

1. Missing Deadlines

HMRC sets specific deadlines for payroll, such as those for NI contributions and taxes, and one of the most common mistakes is missing those deadlines. With everything else going on in a busy office, it’s easy to do.

Missing deadlines can have serious consequences. You could face financial penalties, causing unnecessary expenses for your business.

So how should you avoid missing deadlines? Make sure everyone working on payroll is well aware of the deadlines. Circulate the deadlines and ensure that everyone is familiar with them, and then ensure they get everything done on time.

2. Not Keeping Records

Keeping records is an essential part of payroll. Records should be stored for three years after the end of the tax year for auditors. If not, you could end up facing a financial penalty.

These include records of what you pay your employees, any deductions that you make, reports, payments to HMRC, taxable expenses and more.

3. Paying Too Little (Or Too Much!)

Underpaying your employees is a great way to foster resentment, while overpaying them leads to unnecessary expenses for your business. This can be a problem where the person responsible for payroll has not paid attention to the details, and it can be a sensitive issue.

When employees continue to receive payment even after they have left, sometimes it can be difficult to recover the payments. Check, recheck and make sure you get it right.

4. Relying Too Much on Software

Payroll software is incredibly useful, but it is just that – software. If you rely on it too much, there is more chance of mistakes occurring. By all means, use it to boost efficiency, but don’t be over-reliant on it, otherwise you may fail to input the correct data and make serious mistakes, and you’ll then waste further time having to fix them.

5. Failing to Invest in Adequate Training

One of the biggest problems comes from human error where the staff responsible for payroll do not have sufficient training. This is not something you should leave to chance, so make sure you invest in training your employees – otherwise you may end up paying more as a result of the mistakes they make.

Certain types of payments that can cause specific problems when it comes to payroll. Things like Statutory Maternity Pay (SMP) and Statutory Sick Pay (SSP), for example, need to be considered carefully to prevent mistakes from happening.

6. Using Incorrect Tax Codes

Another common problem with payroll is using the wrong tax codes. Sometimes, the person responsible for payroll may not check the tax codes or just use the wrong ones. This could happen if the employee’s tax code has been adjusted by HMRC.

For example, they may have another job or owe tax from previous years. If you use the incorrect tax code, they may not be paying the right amount of tax.

7. Not Keeping Up with Regulations

One of the biggest issues for businesses is failing to keep up with all the changing regulations. You need to ensure compliance, but payroll legislation changes, and sometimes it can be hard to keep up. Compliance is essential to avoid penalties, so make sure those that are in charge of payroll keep up to date.

8. Misclassifying Employees

Employees can easily be misclassified. This can be a problem where you have temporary workers or contractors, and keeping up with their classification can be a problem when it results in incorrect reports on tax and other areas. At best, this leads to lost time sorting out the issue. At worst, it can lead to fines for your business.

Outsource Your Payroll

With all the potential mistakes that you can make with payroll, and the serious consequences they can bring for your business, it often makes sense to outsource your payroll to a specialist.

Even with the costs involved in hiring an accountant, it can often make sense because you can forget about making mistakes and get on with the other aspects of running your business, potentially boosting productivity.

So avoid the risk of making costly mistakes and enjoy greater peace of mind by letting us take care of your payroll for you.