Common payroll mistakes UK employers make—and how to avoid them
Running payroll is not just about paying your employees; it also means keeping them happy and ensuring your business is compliant, adhering to HMRC regulations. Payroll is a tedious and time-consuming task that can lead to significant mistakes if errors occur. Even if they are unintentional or minor mistakes, HMRC will penalise you.
Whether you are handling your payroll yourself or using outdated software, it is easy to get caught up with the deadlines, tax codes and ever-changing regulations. In this blog, we are going to point out the most common payroll mistakes UK employers make and how a payroll service provider can help you avoid them.
Top 10 payroll mistakes you should avoid
Below are the common payroll errors that employers in the UK face, along with suggestions on how to avoid them to make your payroll process smoother.
1. Missing the payroll deadlines
Missing payroll deadlines is one of the most common payroll mistakes that employers make, and it can be avoided. You will get penalised if you don’t submit the Full Payment Submission (FPS) to HMRC on or before the payday. Due to the Real Time Information (RTI), there is no room for error.
How to avoid:
To avoid missing payroll deadlines, we recommend setting automated reminders in advance of the payroll dates and submission deadlines. Or work with a payroll specialist who will handle the compliance, deadlines, and HMRC regulations.
2. Getting tax codes wrong
Another common payroll mistake is using incorrect tax codes. It means that your employees are either paying too much tax or too little tax, which is not ideal for anyone in the long run. It is very common among starters and those returning from benefits.
How to avoid:
Don’t forget to check the new starter checklist, i.e. the employee’s P45. Always stay updated with the notifications from HMRC, as HMRC often changes the tax codes, and you need to implement the changes immediately.
3. Incorrect National Insurance Contributions (NICs)
Calculating NICs correctly can be tedious, as you need to consider different thresholds, employee categories and mid-year changes. Keeping all factors in check is complex and prone to error. Any small error can affect your contributions, and you might receive an underpayment notice from HMRC.
How to avoid:
This can be easily avoided by using the latest payroll software, which is up to date with the HMRC’s latest regulations. Or you can work with an experienced payroll specialist who understands how NI works on various categories of employees.
4. Skipping workplace pension enrollment
Auto-enrollment is no longer an optional choice; it is now the law. You must enrol your eligible employee on a workplace pension scheme, unless they opt out. Failing to do so might result in enforcement and fines from the Pensions Regulator.
How to avoid:
You should be aware of the staging dates and check whether all eligible employees are enrolled. Always maintain accurate records and make sure the opt-out information is clear and compliant with the law.
Subscribe to the Affinity Associates blog
Receive critical industry analysis and timely advice to power your business decisions and fuel growth.
We’ll only use your email ID to send you blog updates.
See our privacy policy.
5. Not paying employees correctly
Whether it is due to overpayment, underpayment, or an incorrect calculation of overtime, receiving the wrong salary can have a significant impact on an employee’s morale. These kinds of mistakes not only require a lot of time and effort for correction but also can affect tax returns and cash flow.
How to avoid:
Invest in a good software that has built-in validation checks to help you address the errors beforehand. Double-check every single aspect before payroll runs, such as changes to working hours, bonuses, etc.
6. Inaccurate employee records
The secret to error-free payroll relies heavily on precise and accurate employee data, such as bank details, NI numbers, and addresses. Any mistake in the employee data will lead to failed payments and incorrect tax deductions.
How to avoid:
A standardised and detailed onboarding process will help you gather employee information. You must update the employee details whenever there is a change in position, name, address, or a move to a different department.
7. Not keeping up with the latest regulatory changes
Payroll legislation in the UK is subject to change from time to time. You need to track the relevant changes to minimise errors in payroll. Check if there are changes in National Minimum Wage rates, student loan thresholds and many more.
How to avoid:
The best way to avoid this payroll mistake is to stay updated with payroll regulations and The Pension Regulator. If you are stretched thin, a good payroll service provider can help you keep track of regulatory changes.
8. Incorrect employee leavers and starters
Incorrect entries for your new employees or those leaving your organisation can result in a wrong tax file and a delay in final payments. Issue a P45 for a leaver, and for the starters, failure in registering them incorrectly can lead to emergency tax codes.
How to avoid:
Strictly follow the HMRC’s instructions for starters and leavers to the letter. Payroll software will ask you for details; ensure you fill them in with the correct information.
9. Poor payroll record keeping
According to UK law, employers are required to retain their employee data, such as RTI submissions, deductions, and payroll records, for a minimum of three years. If HMRC audits your organisation and finds inaccurate payroll records, then you might face compliance issues.
How to avoid:
Ensure that your physical and digital records are accurate and easily accessible. Cloud-based payroll systems can help you organise these information in one secure place.
10. Doing payroll in-house without the right expertise
Many business owners attempt to manage payroll on their own. They avoid hiring an experienced payroll accountant to save money, only to end up spending more time correcting payroll mistakes. Payroll is a complex and tedious task that requires extreme focus, effort, knowledge, accuracy, and attention to payroll regulatory updates.
How to avoid:
You need a dedicated payroll expert in your team to handle payroll efficiently. Alternatively, working with a reliable payroll service provider will handle your payroll efficiently, allowing you to remain stress-free. It will save your effort, time, and ensure accuracy.
Hidden costs of payroll mistakes
It is easy to assume that a small mistake will not cause major damage. But in reality, even the slightest oversight can cost you a fortune and can lead to:
- Fines from HMRC
- Unhappy employees
- Damaged reputation
- Legal disputes with your employees
- Time wasted on correcting the mistakes
Conclusion
Payroll is considered one of the most important functions of your business. It impacts your employees, cash flow, and compliance. Getting your payroll accurate will enhance your staff morale and ensure you avoid legal troubles and costly mistakes.
Working with the right payroll specialist can help you focus on running your business smoothly. It means that your employees are paid correctly and on time, every time. Need help streamlining your payroll? Book a consultation with our payroll experts.
Author
Mukund Amin
Co-Founder & Director
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
