At Gravita we recently ran a workshop to coincide with National Payroll Week, exploring some of the most common payroll pitfalls and what businesses can do to avoid them. Ahead of our upcoming webinar on the topic, here are some of the insights we shared.
National Payroll Week is a chance to shine a light on one of the most important yet often underestimated business functions. Payroll is about far more than making sure people are paid on time. It is a core element of compliance, a key factor in employee trust, and an area where the smallest of errors can quickly snowball into bigger issues.
Why payroll deserves more attention
Payroll is becoming increasingly complex. Over 90 percent of UK businesses admit to making payroll mistakes every month, while around a third continue to manage payroll in-house. For very small businesses, as many as 44 percent are still running payroll manually. That leaves a lot of room for error.
Missed deadlines, incorrect classifications, or a misapplied tax code can result in penalties, wasted time fixing problems, and a decline in employee confidence. With legislation evolving frequently, it is easy to see why many employers feel that payroll is like walking through a minefield.
Auto enrolment challenges
Auto enrolment remains a common stumbling block. Mistakes often arise in how pensionable pay is set up, whether the correct tax basis has been applied, and whether contribution levels meet the minimum requirements. Employers sometimes miss key tasks such as re-enrolment or fail to align payroll data with pension provider records.
Another issue is communication. Employees must be properly assessed, issued the right documentation, and enrolled correctly. If an employer intervenes in opt-out decisions or fails to re-enrol at the right time, this can quickly lead to non-compliance.
Benefits in kind complications
Benefits in kind can be deceptively tricky. Businesses sometimes misclassify personal and business expenses or fail to gross up personal costs like commuting or gym memberships. Reporting errors are also common, from incorrect car benefit calculations to late or missing Payrolling of Benefits (PBIK) registrations.
Salary sacrifice and Optional Remuneration Arrangements (OpRA) introduce further complexity, with different tax treatments depending on the structure. Employers must also be mindful of whether they have a PAYE Settlement Agreement (PSA) in place, particularly for smaller or trivial benefits, to ensure these are accounted for correctly and on time.
IR35 and international working
The rules around IR35 continue to catch businesses out. Problems occur when employers do not apply HMRC’s CEST tool, disregard its outcome, or fail to issue a Status Determination Statement (SDS). Misclassifying individuals as self-employed rather than employed can have significant financial and compliance consequences.
The challenge becomes even greater when employees or directors are working abroad. Double taxation agreements and reciprocal social security arrangements vary between countries, and it is essential to understand whether time spent overseas changes the way payroll should be handled. Failing to consider this properly can expose businesses to unnecessary risk
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Construction industry scheme issues
In the construction industry, errors with the Construction Industry Scheme (CIS) are frequent. Incorrect subcontractor status, missed return submissions, and inaccurate calculations of deductions all create problems. Discrepancies between CIS returns and what has been reported as CIS suffered can also trigger HMRC reviews that may take months to resolve. For businesses that rely on smooth cashflow, delays in recovering overpaid deductions can create real financial strain.
General payroll processing problems
Beyond these specific areas, day-to-day payroll processing brings its own pitfalls. Holiday pay remains a grey area, especially for zero-hour and part-time workers, with miscalculations common. Errors also arise in applying back pay, processing redundancy or settlement payments, and reconciling with HMRC.
Technology should, in theory, reduce these risks. But ineffective payroll software, incorrect pension scheme set up, and import errors can all undermine the process. Late submissions, missed adjustments, and discrepancies with HMRC are frequent consequences.
The cost of getting it wrong
Payroll errors are not just about compliance. They can trigger HMRC audits, financial penalties, and regulatory scrutiny. They can also erode employee confidence and increase costs by consuming valuable time and resources to correct. In some cases, security lapses can even lead to data breaches under GDPR.
How Gravita can support your payroll
At Gravita we provide tailored payroll services that cover everything from full payroll processing and auto enrolment administration through to benefits reporting, annual PAYE checks, reconciliations, and consultancy. We also offer flexible service tiers, so businesses can choose the level of support that works best for them.
Payroll may never be simple, but with the right expertise and systems in place, it can run smoothly and reliably. That is why we are continuing the conversation in our upcoming webinar, where we will look at how employers can strengthen their payroll processes and reduce the risk of errors.
If you would like to join the discussion or find out how Gravita can support your business with payroll, get in touch with our team.
