When you are running a business and bent on creating and delivering the best product or service you can, payroll management may seem like one of those pesky admin things that can be done later.
However, without a robust payroll management system, there are all kinds of fines, penalties and even lawsuits you could be letting yourself in for. Fret not – we have written this article intending to help you before it gets to that stage.
For now, let us talk about some of the mistakes that frequently happen with in-house payroll and how you can fix them:
1. Incorrect deductions
This is another category of common payroll mistakes and can include accidental underpaying or submitting the wrong tax codes. The only contexts in which you are allowed to make payment deductions are:
- National Insurance (NI)
- Repaying a loan or advancing wages
- Repaying an accidental overpayment
- If the employee is found to be at fault for a shortfall
- Accommodation that you have provided for your employees
- Any shares or share options your employee has bought in the company
- Union subscriptions or pension subscriptions your employee has signed up for
You can rectify this in the next FPS you submit, or you can submit an additional FPS indicating the difference between the reported amount and the actual amount.
2. Gaps in your records
The HMRC requires you to keep all your employee and payroll documents on file, complete in every detail, for three years after the tax year they are from. The documents they expect you to have include:
- Tax code notices
- Reports given to HMRC
- Employee leave of absence
- Taxable expenses or benefits
- All payments submitted to HMRC
- Employee payments and deductions
- Payroll Giving Scheme documents (including employee authorisation and agency contract forms)
If you fail to have these records in full, and if the HMRC subjects you to a company audit, you could be slapped with fines of up to £3,000. So if you are missing any records, or if some were misplaced or destroyed, you should inform the HMRC as soon as possible.
On your final payroll report, indicate whether the figures are estimated (to be accepted as final) or provisional (to be updated later with final numbers).
3. Miscalculated employee pay
All kinds of mistakes can occur with employee payout, from not paying the total amount for overtime or a pay raise not being reflected in the system. These might not seem too bad in isolation, but multiple mistakes along this line could attract significant penalties. So the moment you identify a payout error, rectify it and submit an FPS (full payment submission) statement on or before the day you pay the employee.
4. Non-compliant payroll records
This might seem obvious, but ensuring that your payroll records are filled out properly and are GDPR compliant is vital. If you are late or make a mistake, the HMRC will generally be okay with it as long as you resolve it within 30 days.
Any later, though, and you could attract late submission fines of up to £400 and a further 5% of owed tax if you delay further. If you are concerned about being compliant and do not know where to start on your own, definitely consider taking the help of experts (like us)!
5. Misclassification of employees
Worker misclassification refers to wrongly attributing a worker status to an employee. For instance, freelancers and contractors are not eligible to enjoy the same rights as employees.
If you mix these up, you will find yourself in hot soup, with money owing or owed to the person in question. Moreover, with IR35 regulations in the picture, it is even more important to get your classifications correct on the payroll.
Before you break a sweat – hear us out. You will always be fully aware of all classifications and their proper application through proper training or expert support.
6. Not paying HMRC the right amount
Every company must pay corporation tax, and not paying the correct amount or delaying payment could attract hefty fines. To avoid this, examine your PAYE bill for errors – HMRC will typically add any underpayment or take off any overpayment from your next bill. Then, correct this in the following report you submit.
7. Missing payroll-related deadlines
It is a given – if you do not track due dates for running payroll and paying employment taxes, you land in trouble with your employees (and the government)! Therefore, please make sure you pay your workforce on time and file and remit your taxes by their due dates.
Set appropriate reminders or mark your calendars with due dates. If you are currently struggling to pay employment taxes on time, contact us to find out what you need to do to get your ducks in a row at the earliest.
8. Not complying with automatic enrolment
It is a legal requirement for you to enrol eligible employees into a workplace pension scheme to which you and your employee will contribute.
There are specific enrolment duties, therefore, that you must carry out to be fully compliant, such as monitoring changes in your employee age and earnings and carrying out enrolment of employees who have left the scheme.
Over to you
In short, effective payroll management services are vital for your company’s financial health and overall reputation. To help with ever-changing tax laws and rates, you may find it easier to take help from a brilliant accountancy firm that can help you stay on top of your payroll and save amply on time and money.
If you want a more independent set-up, our knowledgeable accountants can also advise you on the right payroll software to buy so that your records stay shipshape without too much effort from your end. Remember, as your business grows, your payroll will get complicated. Why wait till the last minute?
Minimise the risk of payroll not being processed and keep up with the changes in legislation with our support. Start a conversation with us today. You have got this!