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

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With so much 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 can insidiously damage your business.

So, to help you approach payday with more confidence and a reduced admin burden, we've produced a short piece detailing the most common payroll errors as well as some tips on how to avoid them.

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 FPSs
  • Failing to send an Employment Payment Summary (EPS) if no employees are paid in a month

If it’s your first late submission then it is unlikely that HMRC will penalise you. Generally, the length and frequency of the delay determine whether or not you’re fined. For example, if it’s within three days of payday, you may not be penalised as long as it doesn't become, or hasn't been, a regular occurrence.

Additionally, failing to report your payroll information on time can cost you anything from £100 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 and highly sensitive data such as employee pay levels and personal information can not only compromise operational efficiency but also demonstrates a complete lack of concern for employee privacy.

In the not so distant past, there was a high profile case in the UK relating to data loss. A leading supermarket chain, Morrisons, and their internal auditor were involved in a major breach of payroll data in 2014. The personal details of more than 5,000 staff were leaked by the auditor, with Morrisons being held to blame by both the High Court and the Court of Appeal.

Being held responsible in this way means that, as an employer, you face potentially high compensation claims. The ruling in the Morrisons case demonstrates how seriously any loss of data is seen by the UK courts, and how it can have severe financial consequences for employers.

Collect data & keep it safe!

Collect data & keep it safe!

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
  • Ensure payroll is factored into the organisation’s 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 even 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 that many employers make. 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 provided them with the right to receive the National Minimum or National Living Wage.

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 the potential for so many errors, planning and preparing your payroll systems is crucial. Finding the right payroll solution can help you avoid problems such as paying staff accurately and can lay the foundations for a loyal and trusting workforce.

At PayFit, we have developed robust and flexible payroll software that simplifies this complex area of business. Every task is automated and our HMRC certification guarantees that our solution meets the UK tax system's stringent requirements.

User-friendly, intuitive, and reliable, PayFit's payroll software helps you meet important deadlines, avoid fines and penalties and allows you to focus more of your time on building your brand.

Interested in finding out more ways that PayFit can help automate your payroll processes? Why not book a demo with one of our payroll experts today?

PayFit blog author

PayFit blog author

PayFit

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