Payroll is one of those business functions that everyone expects to be done completely accurately, and always on time, every single month of the year.
But with so many calculations to make and legislative factors to consider, mistakes do happen – and more often than you may think.
Even the biggest brands aren’t immune to the problem. This summer, Next came under fire after a botched software rollout which left both weekly and monthly paid staff either underpaid or over compensated and the business under HMRC investigation.
At a time when workers are already struggling with rising inflation and the cost of living in general, late or inaccurate payments can have serious and immediate ramifications for families.
So what can be done? What are the most common payroll errors, and how can HR and payroll teams work to mitigate against them?
Inaccurate tracking of hours and overtime
One of the most common payroll errors occurs because what seems like the simple task of tracking employee hours isn’t done correctly or accurately.
New HR tech is making this easier, especially when it comes to automatically calculating different pay rates for scheduled hours versus extra shifts – but it still requires accurate human input, from both the employee, and also manager to check data accuracy.
Perhaps the biggest bugbear for employees is not being slightly underpaid, but being paid late. All of us have direct debits that we align with payday, so what we’re owed not hitting our bank accounts when expected can cause a major headache.
Missing payroll processing deadlines also applies to correcting errors, especially any underpayments from miscalculated or previously unreported overtime. Poor time tracking software, as noted above, can severely negatively influence this area of payroll management – something which the adoption of the right tech can support with.
Incorrect deductions being applied to employee pay happens all too often, with the biggest culprits including the wrong tax codes and incorrect pension contributions – especially if a change has recently been requested.
There are a strict set of reasons why deductions can be made from employee pay which includes the usual tax and national insurance, student loan repayments, union subscriptions, repayments on a recent over-pay, share options or providing accommodation.
Occasional errors do happen, especially in a busy payroll department. However, frequent errors can lead to questions from HMRC and also unsettle employees. In this eventuality, looking to invest in better payroll software, or even outsourcing to an outsourced payroll provider, might solve a lot of your organisation’s headaches.
Non-compliance with the latest legislation
Employee-related legislation changes regularly, and new court rulings can also directly influence how much you need to be paying employees.
The best HR and payroll software providers will keep abreast of any developments in this area and notify admins of new rulings that affect their country, and detail how the platform itself will update calculations to meet the new requirements.
Key areas including the security of employee data under GDPR, are also critical considerations for any organisation.
But it’s incumbent on your HR and payroll teams, or outsourced payroll provider, to keep on top of any updates to legislation, including court rulings from recent employment tribunals which may affect your current processes.
Accurate record keeping
Keeping accurate and detailed records of employee pay is critical for all organisations – especially as an HMRC audit can be announced without warning!
Failure to keep full and accurate records can lead to a fine of up to £3,000, and those records according to the government website, need to include:
- Employee payments and deductions
- Reports and payments made to HMRC
- Employee holiday and sickness absences
- Tax codes
- Taxable expenses and benefits
Paper records crammed into 1960’s-style filing cabinets don’t cut the mustard these days, and integrated HR and payroll platforms are doing great work at making it faster, more accessible, and more secure, to file employee records in an easy-to-trace way.
Reduce mistakes with the right software and support
Running an accurate payroll every single time is critical to the smooth running of any organisation, and it’s a function that deserves the right support and investment.
At Phase 3, we help businesses find and adopt the right payroll platforms that meet both the challenges of today, and potential requirements down the road.
And for organisations who want to get on with growing their business and outsource some back-office functions to a specialist, our outsourced payroll services are provided by an award-winning team named as Payroll Provider of the Year 2021 & 2022 by CIPP.