What Payroll Errors are Really Costing your Business and Staff

Last updated on January 15, 2023

Errors happen in business — we’re all aware of that. And regardless of how big or small they are, they can have considerable impact on your business and the staff you employ, particularly when it comes to payroll.

Even if you think the error is insignificant, it can have huge ramifications — from lost employee trust to additional admin time and HMRC fines and penalties. 

And payroll is one of those things that employees might not give a second thought to until they receive the incorrect pay, and then the problem escalates quickly.

So, what are the consequences of payroll errors?

The impact of payroll mistakes on staff and the business

Payroll errors don’t just affect people in the moment; the results can be long-lasting — affecting employee finances, business reputation and even employee retention.

Cause harm to staff relationships

Once you’ve made a mistake, you must repair any damage to employee relationships. Put yourself in their shoes — if you were underpaid, it might take you a few months to regain the trust that you’ll receive the correct amount each month.

If you’re not sure you’re going to receive the correct amount, you might panic that you can’t pay the bills — you might need to apply for a short-term loan or dip into your overdraft or savings to ensure all bills are paid on time. This is extra stress employees shouldn’t need to worry about.

Employee retention problems 

Retaining good employees is in your best interest. Not only because they’re good at their job and help you achieve business goals. But it’s expensive to recruit new members of staff. Aside from the recruitment costs themselves, you have to take the time to onboard and train new staff members. And high turnover is not good for team morale.

Damage to brand reputation

If you’re known as the employer who makes repeated payroll errors, you won’t have potential recruits lining up at your door. You want your brand to be associated with good things, maybe you do brilliant CSR, and other work in the community, or you want to be known for delivering a premium employee experience. You do not want to be known as an employer who pays staff incorrectly.

HMRC fines for your business

If HMRC doesn’t receive accurate and on-time Full Payment Submissions (FPS), you can most likely expect a fine. If this isn’t your first offence, you can expect fines spanning £100 to £400. The fine you receive depends on how big your business is. 

You can receive penalties for failing to submit your P11D by the July deadline — you receive penalties for each P11D, and each is £300. Learn more about HMRC fines.

Dealing with payroll errors

If you make a mistake, don’t hide it. Transparency is always the best policy for payroll errors. Then you should put new processes or procedures in place to eliminate the same mistakes occurring again — even if the error wasn’t due to the payroll department, it usually falls to you to put these processes in place.

Another key element to dealing with payroll mistakes is effective communication. Communicate with the staff affected, from when the error is first spotted through to putting the new procedures in place. 

They deserve to know why the error occurred and what you’re doing to ensure it doesn’t happen again.

Avoiding payroll errors with PayFit

The key to avoiding errors is finding the source of the problem and implementing new payroll practices to avoid making the same mistake repeatedly. And one way to implement new payroll procedures is by using software.

Automated payroll software can help you achieve a more efficient, streamlined payroll process. 

And it does that by helping you save time on the bitty tasks taking up an excessive amount of your time — menial tasks like pay calculations are no longer on your radar. Instead, they’re done for you, making them more accurate. 

If you’re looking for a payroll solution that helps ensure you remain HMRC compliant, and eliminates human error while doing all the heavy lifting, then PayFit could be for you.

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