Running payroll might seem an easy process but it can actually be a complex task due to the regulations, tax codes and legal requirements. Even an experienced business owner can struggle and make simple processing errors which can lead to fines, employee dissatisfaction and potential legal action.
Let’s explore some of the most common payroll mistakes that are made:
Incorrect tax codes – when there are changes to an employee’s circumstances (for example a new job or second income) then new tax codes could apply. If these are not updated an employee might pay too much or too little tax.
NIC calculations – NIC (National Insurance Contributions) can easily be miscalculated especially when an employee has a change such as salary increase or additional income.
Real-time information – HMRC require the submission of real-time information (RTI) on payroll data, if submissions are late or information is incorrect then penalties can be enforced.
Statutory payments – a business has a legal obligation with statutory payments such as sick pay or maternity leave. If mishandled this can lead to incorrect payments being made.
Misclassifying workforce – sometimes confusion can be caused with the workforce when there is a misunderstanding between who is classed as an employee and who is a contractor. Getting this wrong will in turn affect tax, NIC employment rights, pensions and other benefits.
Pension contributions – an employer has an obligation to enrol all eligible employees into a pension scheme and make regular contributions. Confusion occurs around the correct contributions and when employees should or should not be enrolled.
Paying employees – mistakes can be made when monthly payments change due to overtime, differing shift times, bonuses or simple changes to regulatory payments set by the Government.
Student loans – if an employee has a student loan, then an employer is required to deduct respective payments based on their earnings. If there is uncertainty around the correct plan that applies, then in turn incorrect deductions can occur.
Payslips – an employer has a legal obligation to provide a payslip which shows payments and deductions. Inaccurate data can cause compliance issues and causes confusion to an employee.
Payroll records – all payroll records must be kept for a minimum of three years and failure to maintain this will have a negative effect on financial auditing, potentially leading to penalties and/or disputes.
Holiday pay – employees are legally entitled to holiday pay, calculated based on their average earnings. For those what work irregular hours or on zero contract hours, mistakes can be easily made regarding their holiday pay entitlements.
Minimum wage increases – it is not uncommon for the Government to make changes to minimum wage requirements. Failing to adjust to this will result in non-compliance and incorrect payments being made to employees.
Benefits in kind – a benefit in kind such as company car, gym membership or health insurance needs to be recorded. If it is inaccurate then tax liabilities for both the company and the employee can occur.
Late payments – a failure to pay taxes, NIC’s and student loan deductions on time to HMRC can lead to penalties and interest charges.
If a business can avoid these common payroll mistakes, then both employer and employees can remain compliant with regulations and avoid penalties.
Of course, it is always best to seek professional financial support when running payroll. To find out more please call our team on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.
You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
