Common Payroll Mistakes & How To Avoid Them

When you run a business, payroll administration can be one of the most important tasks that you are responsible for. It is essential that your employees are paid correctly and on time, as well as ensuring that your business is compliant with any applicable laws.

However, it is also a complex subject and there are a number of businesses which have fallen foul of some common mistakes.

When you get your payroll wrong, it can mean that employees are left without the money they were expecting or with too much. In this article, Rogers Spencer, payroll accountants in Nottingham take a look at some of the errors that crop up most frequently and the best ways in which you can prevent them.

Pay calculations

Calculating how much pay each employee is due can sometimes be more complicated than you might imagine. Getting it wrong is not only frustrating for employees, but it can damage trust and loyalty in the business. It can also cause a significant number of problems for anyone in charge of payroll as substantial amounts of time will need to be spent investigating the error and correcting it.

Employees can be over or underpaid, and many employees find that it is their first pay check which is either missing or miscalculated. Pay can also be wrong due to benefits or deductions being calculated incorrectly, as well as things like sick pay and holiday pay being worked out the wrong way.

Calculating overtime

When calculating the pay of an employee, you need to make sure that you are tracking all of their hours, including their overtime. These sorts of details are often logged incorrectly, which means the payments that are then made are also wrong. This can be particularly complicated if the corrections span more than one tax year, and the time it takes to correct the error can be extremely stressful for the employee concerned. It is important to remember that overtime miscalculations can result in an employee being overpaid and needing to pay the money back as well as them being underpaid.

It is therefore important to keep a close eye on whether employees are working through their break times and whether they are spending time travelling between different locations. If they are participating in activities outside of normal hours, such as for training or team building, then this must also be logged carefully.

Tax issues

A common error for many businesses is the use of incorrect tax codes. When these are input into any payroll system, it can lead to an overpayment or underpayment of taxes, which then leaves employees with an amount they were not expecting.

Inaccurate records

Your record keeping is essential for ensuring that your payroll details are correct, so if this system is not working properly it can lead to a number of issues. They are laws in place to prevent this and so you need to make sure your records are accurate in order to be compliant and avoid penalties from HMRC. This can often occur if you rely on manual data entry or if you are dealing with vast amounts of spreadsheets where errors can go undiscovered for a significant amount of time. It is therefore important to ensure that you have a properly organised system for your record-keeping to avoid mistakes and fines.

Reliance on a single person

A manual payroll system often means that businesses rely on a single person to complete all payroll tasks. If they become overwhelmed, then there is a greater chance of errors occurring. It is also worth remembering that should that person be on holiday or sick, it is very difficult for anyone else in the business to fill in for them and mistakes become more likely.

Misclassifying employees

Sometimes an employee might be categorised in the wrong way within a business. This generally occurs if someone has been engaged under a contract of service, or if there is no explicit contract to work from. These tend to be referred to as freelancers or independent contractors rather than employees. However, if they have been misclassified, then they may be required to pay income tax and National Insurance contributions as if they were employed. Employee misclassification can include the necessity for substantial back taxes, financial penalties, and legal action from the employees involved.

Preventing payroll errors

Payroll errors can be extremely stressful for employees and anyone who is left dealing with the problem. It is important to remember that if an employee takes home less than they were expecting, it can leave them in significant financial difficulties, and so the impact can be huge. It is therefore important to try and eliminate any manual processes as part of your payroll. This is because there is more room for human error and one single incorrect detail can render all other data useless.

It can also be important to enlist the services of an outside payroll specialist. These are businesses who know payroll systems inside out and can deal with all of it on your behalf. They will be able to put systems in place to help automate much of your payroll and eliminate many of the common errors. They can also reduce the strain on individual members of staff within your business as they can refer your payroll needs to an entire team. As they are experts in their field, they will also be able to stay up to date with any changes that might affect your payroll, such as tax or legislation alterations.

Payroll accountancy firms can ensure that all of your payroll duties are much smoother and can reduce the risk of errors significantly meaning that your business is Less at risk of legal action and financial penalties.

Payroll mistakes can be potentially costly, both financially, reputationally and emotionally. It is therefore important to be aware of some of the most common mistakes that many businesses make and have a clear plan on how you can help your business to avoid them so that your payroll can run smoothly, and your employees receive everything that they are due.