Could you be paying the price for incorrect payroll?

Holiday calculations, tax codes, leavers and changing legislation can make payroll a long and complicated process. The thought alone can instigate a headache.

Paying employees correctly and on time is not only a legal requirement, but also an essential function of any successful business. To put it simply, you expect employees to turn up and work, and they expect to get paid. This agreement forms the foundation of your employment relationships. So if payroll goes wrong, it can cause all sorts of problems.

Whether an honest admin mistake or complications caused by a difficult situation with an employee, payroll problems can get ugly. They also come with a high price to pay. Along with time spent getting back on track, can come back payments and sizable fines.

There are many tricky aspects of payroll to be aware of. We have listed some of the riskiest below.

Withholding wages

There can be times when an employee fails to complete work to the standard expected and you may feel it justified to dock their wages. But be warned, this is a risky move. Failure to pay someone wages that they are entitled to is known as an unauthorised deduction and can bring a claim against you. In fact, docking wages is known to be a major cause of employment tribunals.

A salon receptionist recently won £15,000 in a case against her employer for pregnancy discrimination which included a pay-out of withheld wages.

Inaccurate calculations

Using payroll software should give you peace of mind that calculations are accurate, and that PAYE is being processed correctly. But if the tool you are using does not meet the unique circumstances of your business, you could be at risk of underpaying staff.

This was found to be the case in a recent Court of Appeal ruling on the incorrect renumeration of junior doctors. The payroll software used by Derby Hospitals NHS Foundation Trust did not accurately calculate data on rest breaks, resulting in millions of pounds in unpaid wages.

It can be a challenge to keep up with changing legislation on working hours, breaks and holiday pay. Anyone in charge of managing your payroll software needs to be informed on how to keep systems maintained.

Incorrect classification

We see this a lot. And with IR35 coming into effect next year it has never been more important to understand and assign the correct employment status to those working for your business. IR35 affects contractors and they are expected to favour employers who are informed and compliant.

Labelling someone as self-employed but treating them like an employee or a worker means you could be underpaying them. Some companies operating in the gig economy have come under fire in recent years for this. You may be familiar with high profile cases involving Pimlico Plumbers, Uber and Deliveroo.

Each employment status comes with specific entitlements, and it’s important to know the difference when hiring staff for your business and processing payroll.