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Five payroll mistakes your small business must avoid

Payroll problems can be a big headache for businesses. In the 2015/16 financial year, payroll errors cost UK employers more than £700 million. It’s thought that SMEs accounted for about half of the total cash collected – despite only being responsible for roughly a tenth of the UK payroll.

So, how do you avoid a costly mistake of your own? Here are five potential pitfalls to be aware of…

Failure to keep up with the law

The rules around tax and payroll do not stand still. Big sweeping changes – such as ‘auto-enrolment’ for employees into workplace pension schemes – can easily catch people out if they’re not paying attention. While HMRC should do its bit – it’s also up to you to ensure you don’t miss any new legislation. Open your eyes to what’s going on in the business world around you so that you’re not in the dark.

Poor record keeping

It’s vital that you keep an accurate record of your workforce. You can’t be expected to pay everyone properly if you don’t have a record of when they start, when they have a pay rise, when they are leaving etc. Having up to date books is important in many different ways, and your payroll is a good example of this. Treat it with the seriousness – and resource – that it deserves.

Failure to log one offs correctly

Keeping your books up to date isn’t just about having an accurate record of the regular payments you make – it’s also crucial that one offs are logged properly. As Economia notes, many small businesses make errors when it comes to bonus or advance payments. Don’t be complacent – your payroll isn’t something you can just set up and leave alone.

Trying to do it all manually

Having reams of paper printed out – even if they are carefully tidied away in filing cabinets – could make your payroll a labour-intensive and difficult process. Equally, a digital system that is no more advanced than an Excel spreadsheet is going to be tough to maintain. The beauty of technology is that it allows businesses to speed up and automate some of this kind of work – freeing employers and employees up to do the things that make them money. Small businesses should look for software that makes bookkeeping simple – and then deploy it to their benefit. These sort of packages can certainly help with the previous two points.

Be proactive rather than reactive

Finally, a lot of this boils down to planning. If you’re a proactive business and have a system in place that can identify changes to legislation or your workforce, look at one offs that require extra care and can pinpoint the right software needed to make all of this easier, then you’re likely to have less of a struggle with your payroll. That means having a concerted effort to be proactive – with the time and resource set aside for this to happen. Remember, relying on being reactive means that you might have already allowed a mistake to occur and that – as we’ve seen at the very start of this post – can prove very costly to rectify.




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