Common payroll mistakes

Having worked in the payroll sector for many years, there are a number of common payroll mistakes that crop up time and time again.

Not only can this be frustrating for the employer as they end up wasting valuable time and resources to fix the problems, but can also be detrimental to staff morale, especially if employees have been paid incorrectly.

Some of the most common payroll mistakes:

Handovers

There have been many occasions when I have taken over a payroll client part-way through a year. Sometimes the employer may have been running the payroll in-house or perhaps via another accountant. Having an effective handover should remove some issues that could arise.

Things to look out for when completing a handover:

1. Make sure you have accurate P11 summaries as this shows the gross pay, tax, and national insurance paid month by month.
2. P32 records for the year. Coupled with the P11 summaries, you can check if the employer allowance has been claimed, and/or claimed correctly.
3. A copy of the last FPS submission will detail the unique reference number for each employee at HMRC. When taking over a payroll, you must ensure you continue to use that reference number. If not, I have seen instances of HMRC doubling up the liability due to HMRC.
4. Previous pension information. It is vital to ensure you can complete a pension re-enrolment accurately.

Working Patterns

Making sure you know what days of the week each employee works is crucial. Assuming every employee works Monday-Friday could impact on statuary pay like sick pay and maternity leave.

Use the correct tax codes

Having a P45 from a previous employment or ensuring the employee completes a HMRC starter checklist will help with this. Wrong tax codes could mean an over or underpayment of tax which will need correcting down the line.

Employing new staff

Make sure you enter the employee’s information accurately e.g national insurance number, date of birth, and address details so records can be matched.

Allocate the correct national insurance category letter

Each national insurance letter has a rate of contributions for national insurance for both employers and employees. Getting this wrong could mean the wrong contributions being calculated and paid.

Most commonly used letters:

A -Employees that are aged 21 to state pension age

M – For an employee aged between 16 and 20 years old

C – reached state pension age

Keep employee records up to date

Make sure all employee records are regularly checked and kept up to date. If an employee’s salary, hours worked, or personal information changes, this needs to be updated in the payroll system immediately.

Double-check calculations

It’s essential to double-check calculations to avoid errors that could result in overpaying or underpaying employees.

How to fix payroll mistakes

Depending on the type of payroll software you use, most mistakes can be rectified via prior period adjustments or earlier year updates, but fixing mistakes can be costly in both time spent and potential additional liability payments to HMRC.

Outsource your payroll

Managing payroll efficiently and accurately requires time and expertise.

By outsourcing your payroll to us, you can ensure all of the above measures are taken to ensure your workers are paid correctly, on time, and with no further issues along the way.

The Lambert Chapman LLP payroll team brings years of combined experience to your business, so you can relax in the knowledge that your employees are paid accurately and on time, every time.