Six Ways Payroll Mistakes Can Cause Problems For Your Company

Employees rely on their employers to pay them correctly and on time so when that doesn’t happen because of payroll mistakes it can at the very least cause annoyance. But the consequences could go well beyond that, leading to more serious repercussions both for the employees involved and for your business too. Here are six ways that payroll mistakes can end up causing problems for your company.

A single instance involving a small amount of money is unlikely to be catastrophic but it’s not exactly going to enhance your image as a competent employer in the eyes of that particular employee. While you might be able to quickly sort out a minor payroll mistake, it still doesn’t look great.

But a more significant error could cause personal financial problems for the individual or individuals involved which, at a time when Covid has increased the financial challenges for many people, is the last thing an employee needs.

It can affect them in several ways; for example, if they’ve been paid incorrectly or late they won’t have the expected amount appear in their bank account on the day they were expecting it. That might mean they find themselves unable to make other payments. They might even end up facing bank charges as a result or be forced into the embarrassing position of needing to ask friends or family for a quick loan to help them out.

This can cause a great deal of stress and anguish. And it only has to happen once to have a negative impact, damaging employee goodwill and engagement. If it’s a significant payroll mistake, or if it happens several times, you might find that disgruntled employees start thinking that it’s time to look elsewhere too. That’s never ideal at any time but especially now when so many businesses are struggling to fill their vacancies.

There are circumstances where as the employer you are legally within your rights to try to get an overpayment back off an employee if there’s been a payroll mistake.

But even a one-off overpayment of a small amount that can be taken out of future payments won’t leave a great impression on the employee. And it gets more complicated in more contentious scenarios too. Perhaps the employee didn’t realise there had been an overpayment and has already spent it. Maybe there have been regular overpayments going on that have mounted up into a sizable total amount. You might even be faced with a situation where the employee left the company a while back and the error’s only just been identified through an audit.

Embarking on rectifying these kinds of overpayments can be daunting and stressful. With all the complexities involved, including possible court action, you might end up deciding it’s not worth the time and effort to get the money back off an employee. On the positive side, that spares your employee’s feelings and avoids any negativity that could have resulted in that respect. But from a financial viewpoint, it can be anything from a small frustrating cost to a more damaging hit to your bottom line.

Complying with frequently shifting payroll and employment legislation might be challenging – but compliance is not optional. And if you get it wrong, the reality is that you might be putting your company at risk of facing substantial penalties or other repercussions.

While you might think the ‘danger zone’ only exists where the payroll legislation gets complicated that’s not necessarily the case either. A couple of years ago, the Resolution Foundation found that one in ten UK employees wasn’t even getting any form of payslip – meaning their employer was failing to comply with one of the most basic requirements of all and breaking the law as a result.

Staying on top of employee tax codes is vital. That requires regular checks and updating of records – otherwise employees won’t be paid correctly, there will be errors in PAYE deductions and the wrong amount of tax will be collected by HMRC. If there has been a tax underpayment situation, HMRC is likely to contact the employee directly, which can come as a rather nasty shock. And if the underpayment stems from an error from you as their employer, it has the potential to create some bad feeling.

One or two minor payroll mistakes might not be too detrimental to your business. But what about a substantial error for a large amount, or a mistake that goes undetected for a period of time and builds up into a significant problem?

You might think it wouldn’t happen in your company but many organisations, including some well-known names, have had to own up to payroll mistakes and take the hit in terms of negative publicity. Only recently the latest companies who have failed to meet their obligations in terms of paying the national minimum wage have been ‘named and shamed’ on the UK Government’s website. Yet the chances are that a lot of the companies on that list were not trying to deliberately avoid their obligations. In some cases, payroll mistakes will have led to the employer having to deal with the embarrassment of their name appearing.

One common denominator in all of the points above is the fact that time and effort will have to be dedicated to sorting out any payroll mistakes that have been identified. Whatever choice you make about the best way to handle a particular error, you’ll still lose time going through the process.

Mistakes must be corrected, records must be updated and pension contributions might need to be re-calculated. Time will also need to be spent explaining to the employee what has happened and how it is being rectified.

Payroll has faced a lot of challenges and changes over the last few years. And recently the pandemic has been a particularly complex and fast-moving period.  Our clients have really appreciated knowing that they had experts taking care of their payroll, ensuring that they didn’t have to deal with any consequences arising from payroll mistakes.

Would you like the reassurance of having access to professionally qualified payroll experts, along with systems that are continually updated for full payroll legislation compliance? If so, please get in touch with us for a chat about the payroll outsourcing and software options we can provide.