The most common payroll mistakes small businesses make and how to avoid them

author avatar

PayFit

3 May 2019

Most common payroll mistakes

With such a high potential for error in payroll, many small businesses pay a high price when they make a mistake. 

 

This can lead to poor staff morale, reduced productivity, and a bad reputation - all issues that are difficult to deal with, and which insidiously damage your business.

 

With this in mind here are the most common payroll errors and some tips on how to avoid them, so you can approach payday with more confidence and reduce your administrative burden.  

Missed deadlines

Missing statutory deadlines for filing and payment may lead to hefty financial penalties and a poor reputation with HMRC.

You can receive penalties for a number of reasons, including:

 

  •      Sending your Full Payment Submission (FPS) late
  •      Sending an incorrect number of Full Payment Submissions
  •      Failing to send an Employment Payment Summary (EPS) if no employees are paid in a month

If it’s your first late submission HMRC won’t penalise you, and under certain circumstances when new employers file late. Also, the length and frequency of the delay may determine whether or not you’re fined – if it’s within three days of the employees’ payday, for example, you may not be penalised as long as this isn’t a regular occurrence.

 

Additionally, failing to report your payroll information on time can cost you from £100 per month up to £400 per month, depending on the number of staff you employ.

Data loss

Data loss is a common issue for small businesses that fail to back up their payroll information on a regular basis. Losing vital, highly sensitive data such as employee pay levels and personal information not only compromises operational efficiency, it also shows lack of concern for employee privacy.

 

To highlight this issue a high profile case in the UK concerned supermarket chain, Morrisons, and their internal auditor, and involved a major breach of payroll data in 2014. The personal details of more than 5,000 staff were leaked by the auditor, but Morrisons were held to blame by both the High Court and the Court of Appeal.

 

Being held vicariously responsible in this way means that, as an employer, you face potentially high compensation claims - hopefully not on the scale of Morrisons at the multi-million pound level, but the principal set by the court does hold serious consequences for employers.

 

 

Data loss

 

Keeping payroll data safe

 

Staff training and regular updates on new best practices are crucial to maintaining payroll data security, but what else can you do to keep this sensitive information safe?

 

  •      Run payroll software system updates as soon as they become available
  •      Carry out regular audits on your payroll system
  •      Make sure payroll is factored into the organisation’s overall security policies, including email and mobile use
  •      Change passwords regularly
  •      Separate payroll duties between at least two different employees

Misclassification of employees

Individuals working for your company could be classed as employees, workers, or perhaps independent contractors. It’s important to classify people accurately in your payroll scheme as this determines their statutory employment rights.

 

Misclassification is a common error, however.

 

One particular area for concern is misclassifying workers as self-employed. This has been strongly highlighted by ‘gig economy’ employer Uber and their Employment Tribunal Ruling when the judge ruled that Uber had misclassified workers as self-employed.

 

This made Uber drivers eligible for benefits such as sickness and holiday pay, breaks in their working hours, and to receive the National Minimum or National Living Wage. It’s reported that Uber will appeal the decision in the Supreme Court.

 

It can sometimes be difficult to classify employees correctly given the number of independent contractors now working in our economy, but not getting it right could prove to be an expensive mistake for any business.

How to avoid these common payroll mistakes

With such a wide potential for error, planning and preparing your payroll systems is crucial. Finding the right payroll solution helps you avoid these and other mistakes, and meet all your statutory obligations as an employer.

 

Paying staff accurately and on time, every time, demonstrates professionalism and encourages a trusting and positive relationship with your workforce, so what can you do to limit the margin of error in payroll?

 

At PayFit we have developed robust and flexible payroll software that simplifies this complex area of business. Every task is automated, HMRC certification ensures you meet the UK tax regime’s stringent requirements, and you have all the information you need at your fingertips.

 

User-friendly, intuitive, and reliable, PayFit payroll software helps you meet important deadlines, avoid fines and penalties, and focus on building your brand. Simply put, it makes running a business more joyful – get in touch today to book a demo or find out more about how we can help.

 

Learn more about PayFit