The Costs of Payroll

Payroll is one of the most critical functions within any business. When done correctly, it ensures employees are paid accurately and on time, keeping them satisfied and your business compliant with legal requirements. However, when payroll errors occur, the consequences can ripple across your entire organisation, affecting employee morale, financial stability, and even your company’s reputation.

In today’s climate, with the ongoing cost-of-living crisis, soaring inflation, and heightened scrutiny around fair pay, the stakes are higher than ever. Payroll mistakes can leave employees struggling to pay bills, buy essentials, or avoid debt. These are situations no employer wants to be responsible for.

If you’re concerned about the potential fallout from payroll errors, you’re not alone. Many businesses, including major highstreet brands have faced significant challenges due to payroll discrepancies. But the good news is that most payroll errors are avoidable with the right planning, tools, and expertise.

In this blog post, I would like to explore the costs and consequences of payroll errors, common mistakes to watch out for, and actionable steps to prevent them from happening in the first place.

The Consequences of Payroll Errors

Payroll errors can have far-reaching implications for both your employees and your business. Here are some of the most significant consequences:

1. Financial Hardship for Employees
   Mistakes like underpayments or incorrect deductions can leave employees unable to meet their basic needs. For example, one major UK supermarket’s employees were reportedly underpaid by £500 or more in some cases, forcing some to rely on food banks or skip bill payments.

2. Reputational Damage
   Payroll errors can tarnish your company’s reputation, both internally and externally. Employees may lose trust in your organisation, while negative headlines can harm your brand’s public image.

3. Legal Penalties and Fines
   Non-compliance with payroll regulations can result in hefty fines. For instance:

   • Late or inaccurate Full Payment Submissions (FPS) to HMRC can lead to fines ranging from £100 to £400.

   • Errors with Benefits in Kind submissions can incur penalties of £300 per P11D, increasing by £60 per day if unresolved.

   • National Minimum Wage violations can result in penalties of up to 200% of the amount due.

4. Increased Operational Costs
   Frequent payroll errors can lead to high staff turnover, requiring costly recruitment efforts. It’s widely estimates that replacing an employee can cost up to £3,000 when factoring in advertising, training, and onboarding.

Common Payroll Errors

Payroll is a complex process, and mistakes can happen at any stage. Here are some of the most common errors and how to address them:

1. Miscalculating Employee Pay
   Errors in calculating wages, overtime, commissions, or statutory deductions can lead to underpayments or overpayments.

2. Incorrect Deductions
   Deductions from employee pay must comply with legal requirements and contractual agreements.

3. Incorrect Payments to HMRC
   Mistakes in tax submissions can result in overpayments or underpayments.

4. Non-Compliant Payroll Processing
   Frequent changes in legislation make payroll compliance a challenge, especially for small businesses without dedicated expertise.

How to Avoid Payroll Errors

Preventing payroll errors requires a proactive approach. Here are four strategies to help you stay on track:

1. Conduct Regular Payroll Audits
   Perform annual audits to review active employees, pay rates, wages, and tax withholdings. This helps identify and address issues early.

2. Reduce Human Error with Automation
   Manual payroll processes are prone to mistakes. Investing in payroll software or outsourcing to a reliable provider can minimise errors and ensure compliance.

3. Run Regular Payroll Reports
   Generate frequent reports to track expenses, measure performance, and verify accuracy before processing payroll.

4. Ensure Staff Have the Right Expertise
   If your team lacks payroll expertise, consider hiring a dedicated professional or outsourcing to a payroll service provider. Outsourcing can be a cost-effective solution, with fees as low as £5 per employee per pay period.

The Bottom Line

Payroll errors can be costly, both financially and reputationally. However, with proper planning, the right tools, and a commitment to compliance, you can avoid these pitfalls and ensure your payroll process runs smoothly.

At The Leppignton Group, we understand the challenges of payroll management. Our team of experts is here to help you streamline your processes, reduce errors, and protect your business from the consequences of payroll mistakes.

Don’t let payroll errors keep you up at night. Contact us today to learn how we can support your business with reliable, compliant payroll solutions.

By taking these steps, you can safeguard your employees’ well-being, maintain your company’s reputation, and focus on what really matters—growing your business.