The Consequences Of Payroll Errors Can Be Significant So How Can You Reduce The Risk?

consequences of payroll errors

The consequences of payroll errors can be wide-ranging. They can be disruptive to both organisations and affected employees and potentially cause real financial distress for individuals. And they can also be expensive for UK companies as a whole: research from a few years ago put the total figure at around £700 million a year and, with all the payroll complexities resulting from the pandemic, it’s likely that figure will now be even higher.

These errors don’t only cost companies financially, but they also often put greater pressure on payroll departments. Unfortunately, that increased sense of stress can start to lead to a downward spiral where mistakes actually become more frequent.

What could be the potential consequences of payroll errors?

What could be the potential consequences of payroll errors?

There are all kinds of potential consequences of payroll errors. Just a small one-off error can be upsetting enough for an employee. But if there’s a larger, more significant mistake, or it’s one that affects several employees, it can create all kinds of issues. It might mean an employee hasn’t received the amount of pay they were expecting, and they’re put in a position where the bills they need to cover can’t be paid. Inevitably this will cause bad feeling and distress and even a single incident can shake their faith in the company, potentially impacting overall trust and engagement levels.

Overpayments can in some instances be claimed back but in certain cases they might not be for a variety of reasons, costing the company as a result. Time will be lost due to having to sort out the errors. If incorrect payments have been processed, that will also then have knock-on implications for the tax deductions that have been made. The errors could mean your company isn’t complying with regulations, leading to penalties and fines. And if incorrect payments are a regular issue, it can even start to affect your overall reputation too.

With so many potential consequences of payroll errors, it’s really important every company is thinking about what it can do to address the risks. And there are several things that can be done to reduce the number of costly payroll errors being made.

How can you reduce the risks of payroll errors in your company?

How can you reduce the risks of payroll errors in your company?

  • Improve communication and feedback processes

It’s really important to regularly catch up with payroll staff, especially if they’re not performing as needed when it comes to carrying out their activities in a timely and/or accurate manner. It is easy to let small issues and errors slide but by feeding back where there are any minor problems, it can nip developing issues in the bud and reduce the risk of a larger, more damaging mistake being made. By getting in the habit of regularly reviewing performance and providing feedback, it gives the payroll team opportunities to improve. And of course, the feedback should also acknowledge the good work they’re doing too.

  • Conduct a full audit

While these regular reviews are often enough to prevent payroll errors, sometimes issues can have more fundamental systemic roots. This is when audits have an important role to play, enabling you to fully assess the process as it stands and identifying any opportunities to run the process more effectively.

A complete audit will typically include an in-depth assessment of current payroll and HR practices, processes and software systems to identify weak links and elements that are outdated, inaccurate or lack robustness. This “bird’s eye” view of systems and processes is often what’s needed to identify the big problems that could be causing both payroll errors and, in the worst-case scenarios, enabling fraudulent activities too.

  • Explore integration with HR software

One potential way to reduce the risks of payroll errors is to eliminate a lot of the manual inputting that still takes place by integrating your current payroll system with HR software. If your payroll team is having to rely on a variety of manual inputs and spreadsheets, then it’s very easy for mistakes to creep in which can end up causing problems. By taking an integrated approach, there’s far less opportunity for manual input errors.

  • Outsource your payroll to experienced payroll professionals

One of the most effective ways of reducing payroll errors is by outsourcing a portion or all of your payroll. Increasing numbers of organisations have opted for this route to benefit from the reassurance of knowing their payroll responsibilities are being dealt with by a company that is highly experienced in running payroll.

Of course, there are many benefits to outsourcing your payroll other than minimising the risk and therefore consequences of payroll errors. It gives you the reassurance that your payroll will be run accurately and smoothly no matter what – you won’t have to worry about the impact of a key member of your in-house team suddenly not being available for reasons like illness or any other form of unplanned leave. Specialist payroll companies will have excellent data backup arrangements to make sure that all payroll information is kept secure and complies with requirements for maintenance of records. And it lifts the burden of keeping track of changes in payroll legislation too – your outsourced payroll provider will take care of all of that for you.

Could outsourcing reduce the risk of payroll errors in your company?

Could outsourcing reduce the risk of payroll errors in your company?

No organisation wants to find itself having to face and deal with the consequences of payroll errors. This is why many UK companies have realised that outsourcing their payroll is a reliable and cost-effective way to dramatically reduce, and in most cases fully eliminate payroll errors.

CPS has become one of the UK’s leading outsourced payroll providers. Our team of CIPP-qualified experts have years of experience between them in managing payrolls of all sizes for companies with around 100 to 15,000 employees. We’d be delighted to have the opportunity to tell you more about how we can help you – so please do get in touch for more information about our payroll outsourcing services and to organise a demonstration of our software.