Everybody makes mistakes. But when it comes to payroll, your business can’t afford to be lax. Check out these 7 common payroll errors, and learn how to avoid them.
If you run a business, you know how vital payroll is. Beyond making sure your employees are paid on time, an efficient payroll system shows your team you care about their work (and compensating them for it).
When you make a mistake with payroll, it can cost you more than just money. From losing staff, to incurring fines, and facing consequences from the IRS, a simple error could spell the end of your company.
The best defence is prevention – so here’s how to avoid those mistakes before you make them.
1. Missing deadlines
We get it, nobody likes working to deadlines. But being even one day late submitting your payroll tax could lead to serious penalties. Here’s how the fines rack up:
- 1–5 days late = 2% penalty
- 6–15 days late = 5% penalty
- 15+ days late = 10% penalty
- 10+ days after your first notice, or upon receiving notice for immediate action = 15% penalty
The good news is, these are easy to avoid if you keep on top of deadlines. For example, by using a payroll platform or working with an external team of accountants to take the manual labour out of paying your staff. It’s also worth marking important dates on your calendar so you’re never caught off guard.
2. Not tracking auto-enrolment pensions
Every full-time employee is entitled to a pension. So ensuring your qualified staff are enrolled in the employee pension scheme is a vital part of your payroll system – but this goes hand in hand with careful record keeping.
Employees can choose to opt out or postpone their pension contributions, so it’s important to stay on top of these changes. Plus, be sure to keep track of re-enrolment and declaration anniversaries in order to meet legal requirements.
3. Miscalculating pay and overtime
Errors are bound to happen – we’re only human, after all. But miscalculating pay isn’t something you can afford to get wrong. Not only could this create heaps of extra paperwork for your business, but it’s likely to lead to a dip in staff morale if their overtime isn’t properly accounted for.
4. Using the wrong tax code
It’s easy to make a mistake when inputting tax codes. Depending on their circumstances, different employees will need different codes – for example, new starters, staff with company benefits, or employees with a second income. But one small error can set your company payroll back weeks, and prevent your team from receiving pay on time.
The best way to prevent this is by staying on top of your records and double checking with HMRC if you’re ever unsure (or even if you’re sure, for extra security).
5. Issuing late or inconsistent payments
You might run the most prestigious company with impressive benefits for all your employees and a great office culture, but if your staff aren’t being paid on time, or their pay packets are inconsistent, this probably isn’t going to mean much. Plus, if you’re regularly missing paydays, this could lead to some serious consequences with employment law.
Avoid late payments by setting regular reminders for upcoming paydays. And if you’re ever worried about not paying your team on time, be upfront about it and let them know as soon as possible so they can prepare for the worst.
6. Overlooking holidays
UK businesses know all too well that there are a lot of bank holidays to take into account. And with so many on the calendar, your typical monthly payday is bound to coincide with one (or two) at some point – so having a plan in place to avoid late payments after holidays is vital. Plus, remember to factor in local holidays for staff in other parts of the world (like Thanksgiving in the US, or Bastille Day in France).
Keeping on top of public holidays will also make it easier to calculate owed pay when an employee leaves, as they may need to be paid extra if a holiday falls within their notice period.
7. Misclassifying employees
Misclassifying workers happens more than you think. If your company works with a team of independent contractors and in-house staff, it’s easy to mix up your tax codes and label a freelancer as a full-time employee, ending up with money owing from, or to, that person. And with IR35 regulations constantly changing, it’s even more important that you pay extra attention to employee classification by keeping meticulous records.
Make things easy with Nabarro Poole
If the idea of re-organising your payroll system fills you with dread, don’t worry – that’s exactly where Nabarro Poole can help. This June, we launched our Plus Payroll Package, which includes all the standard services we provide in our existing payroll package, plus:
- Checking eligibility and enrolling staff into the relevant pension scheme
- Calculating contributions
- Uploading the contributions to pension provider
- Liaising with pensions regulator to ensure compliance