How Payroll Mistakes Can Impact Your Business

Jul 4, 2024

Your business can face a number of hurdles along the way to success, from cash flow problems to not earning enough profit for your goals. One challenge that’s often forgotten, though, is payroll.

But paying your employees correctly isn’t always easy. With complex compliance rules and variable tax deductions, if you’re not a financial professional it can be difficult to keep up with all the red tape. 

So, what happens when you get it wrong?

To learn more about payroll mistakes and how they can impact your business, our bookkeeping services team has taken a closer look. Let’s dive in.

What Is Payroll?

Before looking at the potential problems of payroll mistakes, let’s first take a quick look at exactly what payroll is.

In simple terms, payroll refers to the task of paying your employees. Your payroll system can include:

  • Tracking billable hours
  • Calculating pay
  • Calculating tax
  • Calculating pension contributions
  • Providing payslips
  • Distributing payments

What Happens If Your Payroll Is Wrong?

To understand more about why effective payroll systems are so important, let’s take a look at some of the impacts when it goes wrong.

Financial Losses

Errors in your payroll can lead to underpayments and overpayments.

  • Underpayments: You pay your employees for fewer hours than they’ve worked.
  • Overpayments: You pay your employees for more hours than they’ve worked.

Overpayments can cause your business to suffer financial losses. When you pay your employees more than they’ve earned due to inefficient tracking or miscalculations, you end up with a bigger payroll expense than you’d budgeted for.

This can lead to problems down the line, from complications trying to resolve the overpayment to issues with your cash flow.

Potential Fines

In England, there are laws around payroll that make it crucial you stay compliant. For example, it’s a legal requirement that employers follow the Pay As You Earn (PAYE) system if their employees:

  • Earn £123 or more every week
  • Are given company benefits or receive expenses
  • Will get a pension
  • Have had another job or claimed benefits including Jobseeker’s Allowance, Incapacity Benefit, or Employment and Support Allowance

PAYE collects National Insurance and income tax from your employees as they earn rather than at the end of the tax year (as with a self-assessment tax return). It’s your responsibility to ensure PAYE calculations are correct and your team are paying enough tax on their earnings.

It’s also vital that you submit accurate details of your payroll before any deadlines (such as your monthly payday).

Errors in your payroll, such as those relating to PAYE and deadlines, can result in potential fines. 

Legal Issues

You have a legal obligation to follow UK laws around payroll and employment. If you make mistakes, this could be viewed as breaking the law (particularly around tax compliance), and regulatory authorities (like HMRC and Companies House) can conduct audits into potential violations.

Payroll errors can also enable your employees to take legal action against you. If you consistently underpay your staff, for example, or miss payment schedules, affected employees can file lawsuits against your business.

To avoid ending up in legal hot water, it’s crucial you take payroll seriously and understand how to stay compliant.

Employee Dissatisfaction

It’s not uncommon for late payments or miscalculations to lead to unhappy staff. When members of your team are paid less than expected and it’s your fault, they’re not going to be impressed.

This can lead to widespread employee dissatisfaction. Considering that unhappy staff take nine more sick days on average a year and are, of course, more likely to leave your business, this isn’t good news for your company.

Reduce Morale and Productivity

Dissatisfaction caused by payroll mistakes can also lead to a drop in both morale and productivity. Just 13% of unhappy staff report being productive at work, so you can expect around 87% of dissatisfied team members to put in less effort than they could in the workplace.

This can have countless knock-on effects for your business, from a reduction in product/service quality to missing deadlines, putting your brand image at risk.

Difficulty Hiring Top Talent

Consistently making payroll mistakes is bound to reflect negatively on your business.

Websites like Glassdoor have made it a lot easier for employees to share their opinions on their employers anonymously, essentially reviewing what it’s like to work for you. If you’re making a lot of payroll errors, it’s only a matter of time before they’re mentioned.

When potential new hires look into your reputation, these negative reviews might dissuade them from joining your business. In-demand, talented employees are more likely to go elsewhere, leaving you with a gap in your team and giving your competitors the edge.

How Payroll Services Can Boost Your Business

From legal issues to unhappy employees, the impact that payroll mistakes can have on your business is potentially fatal to your success. Accuracy isn’t something you can afford to ignore.

That’s where professional payroll services come in. By working with a team of experienced accountants, you can ensure legal compliance and avoid costly mistakes without the need for an in-house financial team, simplifying your systems.

At Angel Bookkeeping & Payroll Services, we provide comprehensive payroll services for small businesses in the UK. From calculating PAYE and pensions to submitting reports before your monthly payday, we stay on top of your payroll so that you don’t have to worry. 

We also offer CIS payroll services (similar to PAYE) for those in the construction industry who work with subcontractors.

Ready to Organise Your Payroll?

Whatever your payroll needs, we can help. From setting up tax-compliant systems as you launch your startup to reorganising existing payroll to reduce mistakes, our payroll services in Worthing are designed to take the stress out of your finances. 

To learn more about our digital payroll solutions and how our team can help you, get in touch today. When it comes to your payroll, we’re always ready to help.

Get In Touch

I can help with bookkeeping for start-up businesses If you’re in Worthing and surrounding areas and need help with your startup business, contact Angel Bookkeeping today on 07867 129210