Paying your employees the correct amount at the right time is critical. The larger and more complex your business, the more challenging this fundamental task can be. This is where payroll systems come in.
Getting payroll right can make the difference between a prosperous business and a failing one. Let’s take a look at a few of the more common kinds of payroll mistakes, and see how we might avoid making them.
Understanding Payroll Compliance
If you’re using PAYE as part of your payroll, then you’re legally obliged to do a few things every month. You should record the amount you’re paying your employees on the day you’re paying them, while factoring in deductions like tax and National Insurance. You’ll need to inform your employee of this figure, via a payslip, and HMRC, via a document called a Full Payment Submission.
Common Classification Errors
Many businesses fail to distinguish properly between employees and contractors. This can lead to you overstating, or understating, your tax liabilities.
A contractor is subject to a set of rules known as ‘IR35’, which broadly aim to get everyone paying the same amount of tax. You can determine whether a given person is employed or self-employed using the government’s online Check Employment Status for Tax (CEST) tool.
Accurate Data Management
The more accurately you record the hours worked by your employees, and the wages paid to them, the less likely you are to misreport your payroll. The more current and accurate your records, the more easily you’ll be able to fend off legal claims from previous employees. Where there’s ambiguity, there’s often an opportunity for lawyers to step in.
The right payroll software can help to not only make your records more clear, accurate and transparent – it can also lower the cost of creating and administering them. As such, it’s an investment worth considering.
Timely Reporting and Payments
You’ll need to report your payroll to HMRC every month, as we’ve mentioned. If you fail to do this, you could be made to pay penalty charges. What these amount to will depend on the length of the delay.
If you fail to submit your FPS, then HMRC will typically notify you via a late filing notice. It’s worth noting that late filing will not just cause problems within the business – it can also affect the employees in question, too, who might find that their access to income-related benefits like Universal Credit is disrupted.
If your reporting isn’t timely, then the business might gain a reputation for sloppiness. Employees will discuss problems with the payroll, which can undermine confidence and ultimately lead to depressed morale and higher staff turnover.
The best way to deal with this is proactively. Put in place rigorous procedures for payroll, and make sure that it’s done properly every month.
