Payroll errors are becoming increasingly common among UK small businesses, with 84% of surveyed leaders admitting to having made mistakes. These errors can lead to significant financial penalties, as well as demotivation and decreased productivity among employees. * The most common payroll errors include:
- Calculating wages incorrectly (48%)
- Late/missing payments (38%)
- Calculating correct hours (36%)
- Incorrect tax calculations (27%)
These errors can have serious consequences, including:
- Employers facing penalties and fines from HMRC
- Employees experiencing financial hardship due to missing payments
- Trust among employees eroding, leading to demotivation and decreased productivity
For example, supermarket giant Asda faced a major payroll issue in March when an IT glitch resulted in nearly 10,000 workers receiving incorrect pay. This led to a 48-hour strike by employees, who described the issue as a “litany of workplace issues.”
Asda’s experience highlights the importance of accurate payroll processing. With the rise of National Minimum Wage, National Insurance Contributions, and tougher enforcement of employment law, small employers are facing increasingly complex tax regulations. This complexity is turning payroll compliance into a significant risk for SMEs.
The root cause of the problem is often outdated processes and limited resources. Many SMEs still rely on manual processing, with 31% using spreadsheets to calculate wages. This can lead to errors and inefficiencies, making it challenging for businesses to manage their payroll.
“With the rising National Minimum Wage, increased National Insurance Contributions, and tougher enforcement of employment law, there’s never been a more complicated time to be a small employer,” says Kevin Fitzgerald, Employment Hero UK Managing Director.
Despite HMRC’s efforts to digitalize the tax process, 70% of SMEs are worried about keeping up with payroll technology, and 38% say they lack the expertise to manage the process. This has led to a reliance on outsourcing payroll to third-party providers, which can be costly.
| Cost of payroll outsourcing | Range (per month) |
|---|---|
| £1,625 | Smaller SMEs |
| £2,724 | Average for all SMEs |
| £3,408 | Larger SMEs |
To address this issue, Employment Hero has launched a new free payroll software, which will be available to all UK businesses. The company is also offering a free payroll consultation and a competition with a £5,000 prize. “Payroll has become a compliance minefield. SMEs are trying to do the right thing, but outdated systems and limited resources are costing them dearly,” says Fitzgerald. “No small business should face fines just for lacking the right tools – and that’s why we’re making payroll free. It’s too fundamental to get wrong.