As businesses grow, payroll tends to become more complicated. In this article, GroForth’s Sarah Daly lists common payroll problems and suggests practical ways to avoid them.
In a recent article on this blog, I listed 21 common payroll errors and explained why it is so important to ensure that your payroll administrator is properly qualified. However, errors are not the only thing that can cause payroll problems. Today, I want to focus on a few of the most common issues that crop up explain how unless you overcome them, they can cost your business a lot in terms of both time and money.
Common payroll problems
It is extremely important to have the correct information for each of your employees every time you run your payroll. You also need to ensure that you have processes in place to alert you when changes happen such as a new employee joining, an employee leaving, changes in hours worked, pay scale changes, worker classification changes, and so on.
Payroll problems often arise due to changes happening that are not brought to the attention of the payroll administrator. Clients have also come to me for help with problems that arose because the person looking after their payroll was either inexperienced or unexpectedly absent for a period of time.
Some of these problems are more serious than others, but all need to be addressed promptly to prevent them escalating into a major issue. Examples include:
- Employees on incorrect tax bands
- Incorrect wage payments
- Delayed payments
- Unlawful deductions
- Payslips not issued on time
- Problems with holiday pay
- Workers labelled as ‘self employed’ when they should be classed as employees
Impact on your business
For employers, one of the biggest impacts of payroll problems is that they can be very time consuming to resolve. They can also be expensive if back payments need to be made and are not in the budget.
Likewise, fines and penalties can be involved. This has really hit home since the introduction of PAYE Modernisation in 2019 because now each time that you make a payment to an employee, you have to report certain information to Revenue in a Payroll Submission Request (PSR). This tells Revenue who you are paying and contains details of each person’s gross pay, statutory deductions and pay date. The PSR information enables Revenue to identify more accurately whether the right tax is being paid. Mistakes and errors can be extremely expensive as Revenue can impose a penalty of €4,000 per offence.
Apart from the potential cost of Revenue penalties, there is also potential reputation damage to think about if a serious payroll issue occurs. This can escalate very quickly if an employee complains publicly, for example on social media, about a payroll omission or mistake.
How to avoid payroll problems
To avoid problems, it is crucial to set your payroll up correctly at the outset. This involves ensuring that you have correct information for all of your employees. Your payroll software must be compatible with Revenue systems and needs to comply with relevant Irish legislation. You will need to carry out ongoing compliance tests and implement robust processes for onboarding new employees, processing leavers, and so on.
You must also have a clear and accessible procedure to investigate complaints and resolve them promptly. Before running each payroll, you will need to obtain the necessary details of hours worked, pay due and deductions for each employee. Relevant details must be communicated to Revenue and any corrections that are needed must be made within certain allowed timeframes.
The more employees that you have, the greater the chance of error. This is one reason why many employers decide to outsource their payroll. It is simply too complicated to maintain in-house if you do not have a qualified and experienced payroll administrator on your team.
What does outsourcing payroll involve?
Outsourcing is where you hire an external service provider to carry out certain tasks for your business. While this can save you time and reassure you your payroll is being operated correctly, you need to choose your payroll service provider carefully making sure that they have the resources and skills to deliver the services you need.
Check that their software, systems and processes integrate reliably with your accounting software and with Revenue’s systems. Check also that their payroll team are properly qualified and comply with relevant tax, employment and AML requirements. This is really important as it is your reputation on the line if things go wrong.
Finally, as always, if you are having payroll problems and need assistance, please don’t hesitate to contact me. I will be happy to explain how GroForth can help your business.