Payroll responsibilities are a central function of any business – after all a happy team that is paid correctly and on time is the best outcome for everyone! However the complexities of payrolls can be daunting for accountants, HR teams and small business owners; hurdles such as auto enrolment, rolling deadlines RTI, and complex legislation can give rise to errors, overpayments and even non-compliance. With hefty fines in place, mistakes can be costly and time consuming to fix. This means that careful planning, good record keeping and up to date knowledge is essential for a smooth process for all concerned.

Complex payrolls and past mistakes are most often the reason that we see our clients come to us for payroll support. We’ve witnessed many client errors over the years, so with that in mind, we’ve compiled five of the most common mistakes in payroll and how you can avoid making them in your business.

1. Missed Deadlines

It may sound like such an obvious mistake that it’s perhaps too obvious to mention – after all, no one misses deadlines – do they? In fact it’s one of the most common payroll mistakes; when you’re juggling many tasks then missing one of the multiple HMRC payroll deadlines can be very easily done.

And unfortunately it’s an expensive mistake, with penalties for late payment of PAYE and National Insurance starting at 1% for 1-3 defaults in a tax year and increasing, with interest. There are also additional late payment penalties.

Careful planning and good record keeping is the best way to avoid missing deadlines. If your workload feels unmanageable and you find yourself cutting deadlines too fine then consider delegating tasks or outsourcing parts of your role to free up your time for other important projects.

2. Misclassification of employees

Worker misclassification is where an employee or a contractor is wrongly attributed to a worker status. Contractors and freelancers are not eligible to the same rights as employees, for example holiday allowance and pensions. If you mix these up you’ll find yourself in a muddle, with money owing from or owed to the person in question. It’s a situation that can be time consuming to unravel and put right.

With IR35 regulations being further reformed, it’s even more essential that you get your classifications correct on your payroll.

Good record keeping and knowledge of the latest legislation will help you avoid this pitfall. Double check: “Is this employee really classified correctly?”.
Thorough training will ensure you are fully aware of all the classifications and their proper application. Online Payrolls can of course support here.

3. Using the wrong tax code

Tax codes can easily be incorrectly used; this causes a headache for payroll teams and means that employees can end up paying more tax than they need to – or not enough.

New starters, employees with a second income, those with company benefits such as a car or private medical insurance and furloughed employees; just some of the numerous nuances that affect tax codes.

Keeping on top of tax codes for your employees is crucial to ensure that they are paid correctly and the right amount of tax is collected by HMRC. Regularly checking and updating your records will help you stay on top of changes; you may find a checklist will help you keep track. Tax codes can be double checked with HMRC. Employers will find it helpful to sign up for a HMRC PAYE for Employers dashboard, as the tax codes can be reviewed and downloaded using this service.

4. Auto enrolment

Auto enrolment has added an extra burden to payroll managers and HR departments. Ensuring all of your qualified employees are enrolled in the workplace pension scheme means careful record keeping. Not only do you need to ensure that only qualified employees are correctly enrolled; there is also those employees who have opted-out and postponed their contributions to take into account and keep on top of, as well as those reaching re-enrolment and declaration anniversaries. Employers have a legal responsibility to comply with automatic enrolment duties.

Ensuring that you are fully versed on the rules of the system is the first step. The second is maintaining excellent records. Software can help you with this part. Most importantly, ensure that you are on top of the changing legislation.

5. Relying on software too much

Payroll software can be a lifesaver for HR and accountancy teams – automating tasks and increasing efficiency across the business. However without correct training or sufficient experience using payroll software may cause more problems than it solves. Incorrect data input can lead to miscalculations so it’s always best used by a skilled professional.

And while it can highlight payroll errors, it won’t fix the mistakes for you.

How to avoid errors in payroll

Being aware of the most common errors is the first step to avoiding them for your business. This in turn will allow for a smooth process and happy employees.

Maintaining tip-top records is key to ensure that you remain compliant and execute your payroll correctly. Ultimately, it’s thorough training and up to date knowledge that is at the core of an efficient payroll service for both the business and your employees.

It’s vital that you stay up to date with the latest legislation and payroll developments, which is why many companies work with a skilled payroll specialist to outsource their payroll requirements. These teams of experts (like our own skilled payroll bureau) are fully trained in all of the nuances of complex payrolls and able to support you with a comprehensive solution that ensures a smooth operation every month.

Speak to us today for a no obligation quotation to discover how we can save you time and money with our value-added payroll solutions.