Biggest Payroll Problems and Solutions

27th November 2019

Managing an efficient and smooth-running payroll system is a daunting prospect for many businesses, and the responsibility often lies with just one or two people – making the risks especially high. In addition to contending with potentially complex in-house salary packages, the payroll team needs to liaise with pension companies and The Pensions Regulator, keep up with current legislation, and guarantee compliance with HMRC guidelines. The whole process can be complex and time consuming, and should things go wrong, the penalties can be high, and the effect on staff morale can be staggering.

Common Payroll Problems and Solutions

If your business is struggling under the demands of payroll, it can be helpful to understand exactly what kinds of payroll problems to avoid and how to solve them. Our list of the top payroll problems may well ring true with your experience.

Processing payroll late

Payroll processing is an essential task that must be done promptly and accurately. Failing to pay your employees on time can cause a great deal of unhappiness within the workforce which can impact productivity and relationships.

Processing payroll incorrectly

Things can get even more complicated if you inadvertently underpay or overpay your staff – an error which can be very costly and time consuming to correct. If these payroll processing mistakes persist, you could be seriously affecting staff morale and motivation, and stalling the growth and development of your business. Repeated incorrect payroll is also likely to affect staff retention.

Inadequate backup systems

Businesses that fail to invest in adequate payroll software with backup systems in place run the risk of losing vital information should an error occur. The loss of payroll data and payroll history can cause huge problems for the whole business – inhibiting productivity, affecting staff morale and hindering efficient payroll processing.

Not enough trained staff

It’s essential that businesses employ more than one person who is capable of managing payroll functions. Relying on only one member of staff in-house can lead to problems if they are taken ill or leave, and there is no one else who can process payroll effectively.

Inexperienced payroll staff

One of the most common payroll mistakes businesses make is not providing adequate training, or hiring inexperienced staff to deal with payroll processing. Managing payroll in-house requires highly trained personnel who have the relevant expertise, knowledge and qualifications to ensure payroll is processed accurately and on time. Inexperienced staff may be incapable of complying with current legislation such as HMRC’s RTI and auto-enrolment, and could make incorrect employee deductions and amendments such as National Insurance Contributions (NICs) and student loans.

Payroll Accounting Problems and Solutions

Poor record keeping and data entry

HMRC requires all UK businesses to maintain accurate and detailed financial records for the current and three previous tax years. These include important documentation such as;

Time sheets

Tax code notices

Employee leave

Sickness absences

All of these need to be reported to HMRC when you file a tax return. Poor record keeping and data entry can be very costly for businesses in terms of productivity and growth, and can result in a hefty £3,000 fine.

Staying within deadline

Many businesses carry out a chaotic run of payroll extremely close to the date of transaction, potentially increasing the likelihood of missing important employee data. For example, if the payroll is dispatched by the 25th of every month, then the procedure could highlight that relevant data be handed over or entered by the 20th of the month while any entry after the 20th will not be  considered. Gathering all the data and completing your payroll before the last minute will avoid missing data.

Invalid RTI (Real Time Information)

RTI is what employers and pension providers will inform HMRC about PAYE (pay as you earn) payments at the time they are made, this is a vital part of the payroll process. One requirement of RTI is to report PAYE information to HMRC ‘on-or-before’ the date they paid their employees. The RTI system is designed to deliver benefits to HMRC, employers and employees. These benefits include greater stability and reduced risk of over or under payment of tax for employees and simplification for employers at the end of year (no more need for an End of Year tax return). Overall, it reduces scope for error and fraud.  When RTI is invalid, this can cause many problems for the employer.

Solutions for Common Payroll Problems

With a little care and planning, it is possible to avoid payroll mistakes and ensure consistently accurate and timely processing of payroll. If you’re a small business owner, this may involve taking the following steps, which will help you to establish a reliable and secure payroll system.

Choose the right payroll solution for your business

Having the right payroll solution is imperative to the efficient running of payroll. Businesses just starting out, or looking to review their current payroll system, should choose a payroll solution that meets the size and shape of the workforce. For micro and SME businesses, either a fully outsourced payroll service or a part managed payroll service could be the ideal solution. For larger companies, comprehensive payroll software may be more beneficial. The key is to find a supplier who can give a blended solution that is right for you now, but can grow with your business.

Hire qualified personnel

Business owners who want to run the payroll system in-house must dedicate time and resources to hiring adequately trained staff who are up to date with current legislation, and have the expertise to handle all the necessary functions. Regular training is also essential. If you employ an outsourced provider, ensure they can provide essential help and guidance so that you’re always on top of payroll legislation and changes.

Learn & keep up with payroll facts

Take time to understand the basics of payroll, particularly in terms of tax rates, HMRC legislation, and employee entitlements. Knowing the fundamental elements of how to run payroll and everything involved will help you to establish a more efficient payroll processing system and avoid simple, yet costly, mistakes.

Payroll outsourcing

Payroll outsourcing is an increasingly popular solution for any business that wants complete assurance that their payroll is being calculated correctly. At IRIS FMP, we specialise in providing tailored payroll outsourcing solutions. With our expertise, software and high quality services, we can ensure fast, reliable and secure payroll processing to save your business valuable time and money.

Encountering problems with UK payroll process steps can be costly for any business, impacting staff retention, affecting productivity and leading to potentially large penalties from HMRC or The Pensions Regulator. Not forgetting damage to your reputation, often fuelled by social media, and the HMRC ethos of naming and shaming. Stay on top of things by performing regular payroll audits, and implementing these best practice solutions.