10 common payroll problems and how to fix (or avoid!) them

Last checked and updated on 21 June 2022

Do you know what the most common payroll problems are? If you’re an employer in the UK, it’s important to be aware of these issues and take steps to avoid them. Otherwise, you could end up facing penalties from HMRC.

In this article, we’ll discuss 10 of the most common payroll problems and how to avoid them. Let’s get started!

1. Incorrect or late payslips

One of the most common payroll problems is incorrect or late payslips. This is technically illegal and could result in a fine from HMRC.

This can also cause a lot of confusion and frustration for employees. To avoid this, make sure you double-check your calculations before sending out payslips. If you’re using payroll software, run a test payrun to check everything.

If you’re paying employees in cash, make sure to issue them with a payslip so they’re aware of how much they’ve been paid.

2. Wrong tax calculations

Another common payroll problem is incorrect tax calculations. This can happen if you’re not using the correct tax code or you make a mistake when calculating taxes.

If you’re unsure about how to calculate taxes, it’s best to seek advice from an accountant or bookkeeper. They’ll be able to advise you on the correct tax codes to use and help you with your calculations.

If you do make a mistake, HMRC may charge you interest and penalties. To avoid this, make sure you keep accurate records of your calculations and get help if you’re unsure about anything.

Incorrect tax calculations can also lead to employees not being paid the correct amount. This can cause a lot of frustration and can be difficult to fix. To avoid this, make sure you’re clear about the tax rates and how to calculate them correctly.

3. Failed to pay HMRC on time

If you don’t pay HMRC on time, you’ll be charged interest and may also be liable for penalties. This is one of the most common payroll problems and can be easily avoided by setting up a direct debit.

By setting up a direct debit, you can ensure that your payments are made on time, every time. This will help to avoid any penalties and will also help to keep your records up to date.

If you’re having difficulty paying HMRC, you can also contact them to arrange a payment plan. This will help to spread the cost of your tax bill and can make it more manageable.

4. Employer National Insurance contributions (NIC) not paid

If you don’t pay your employer NIC, you could be liable for a fine.

To avoid this, make sure you’re aware of the deadline for paying your employer NIC. You can find this information on the HMRC website.

It’s also important to keep accurate records of your NIC payments. This will help you to avoid any penalties and will also make it easier to budget for future payments.

If you’re stumped as to how to work out your NIC, seek assistance from a financial advisor or bookkeeper. They’ll be able to help you determine the right amount to pay.

5. Missed pension payments

If you have employees enrolled in a workplace pension scheme, it’s important to make sure their contributions are being paid on time and in full. Missed or late pension payments can cause a lot of stress and anxiety for your employees, so it’s best to avoid this situation if at all possible.

There are a few different ways you can ensure your employees’ pension contributions are being paid on time and in full:

You can set up automatic payments from your business bank account to the pension scheme provider. This way, you’ll never miss a payment or have to worry about making one late.

You can also set up reminders for yourself or your payroll team to make sure the payments are being made on time. This could be a weekly or monthly reminder to check that the payments have been made, or even just a reminder to yourself to make the payments on a certain day each month.

Whatever method you choose, just make sure you’re staying on top of your employees’ pension contributions. It’ll save you a lot of headaches and payroll problems in the long run!

6. Employees underpaid or not paid at all

This is probably the most common payroll problem there is. Employees not being paid correctly or at all is a huge issue and can lead to severe financial hardship for those affected.

There are a few reasons this might happen:

  • The payroll team may not have been given the correct information about an employee’s salary or hours worked.
  • An error may have been made when inputting the data into the payroll system.
  • The payroll system itself may have a glitch or be outdated.

Whatever the reason, it is vital that this problem is rectified as soon as possible. Employees should be paid their correct wages, plus any back pay owed to them, as soon as possible.

7. Wrong deductions made from wages

If you make a mistake when deducting money from an employee’s wages, it can cause serious financial hardship. This is why it’s important to get deductions right the first time.

The best way to avoid this problem is to have a clear and accurate payroll system in place. Make sure that all employees understand how deductions are calculated and deducted from their pay.

If you do make a mistake, rectify it as soon as possible and apologise to the employee. They may be entitled to compensation if the mistake has caused them financial hardship.

8. Unauthorised overtime not paid

If you have employees working overtime, it’s important to make sure they’re being paid for it. Unauthorised overtime is when an employee works extra hours without prior approval from their employer.

This can happen for a number of reasons:

  • The employee may not be aware that they need prior approval for overtime.
  • They may not be able to get approval in time, so they just go ahead and work the extra hours.
  • They may not think it’s a big deal if they’re not paid for the overtime.

Whatever the reason, it’s important to make sure your employees are aware that they need prior approval for overtime. Otherwise, you could end up owing them a lot of money in back pay.

If you do find yourself in this situation, the best thing to do is to rectify it as soon as possible. Pay the employee for the overtime they’ve worked, plus any back pay owed to them. Then, put a process in place so that it doesn’t happen again in the future.

9. Expenses not reimbursed

If you have employees who are incurring expenses on behalf of your business, it’s important to make sure they’re being reimbursed in a timely manner. Otherwise, they could end up out of pocket and resentful.

There are a few things you can do to avoid this problem:

  • Make sure you have a clear expenses policy in place. employees should know what expenses are eligible for reimbursement and how to submit them.
  • Set up a system for processing expenses claims in a timely manner. This could involve setting aside time each week to review and approve claims, or delegating the task to someone on your team.
  • Make sure you have enough money set aside to cover expenses claims. This will help to avoid delays in reimbursement.

If you do find yourself behind on expenses, the best thing to do is to catch up as soon as possible. This will help to avoid any resentment from employees and will keep them happy and productive.

10. Not keeping proper payroll records

It’s important to keep accurate and up-to-date payroll records. Otherwise, you could face hefty fines from HMRC. Payroll records should include information such as employee salaries, hours worked, and deductions made.

You can avoid this problem by putting a system in place for keeping track of payroll information. This could involve using software, or simply keeping a well-organised paper trail.

Whatever system you use, make sure it is easy to use and maintain. This will help to ensure that your payroll records are always accurate and up-to-date.

Avoiding payroll problems

Payroll can be a complex and daunting task, but it’s important to get it right. By following the tips in this article, you can avoid common payroll problems and keep your business running smoothly.

Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.