8 Common Payroll Mistakes Your Accounting Practice Should Avoid Making

It’s a well-known fact that payroll management is a complex and challenging accounting function. Rules and regulations related to payroll compliance are everchanging at the local, state, and federal levels. Furthermore, you also need to deal with several internal changes, such as incoming and outgoing employees, vendor and supplier changes, and handling salary-related matters.

It’s important to get payroll right in the first go, as mistakes can be costly and lead to potential fines from the HMRC. We’ve compiled eight of the most common payroll mistakes you should avoid at your practice.

Common Payroll Mistakes to Avoid

Missing deadlines: Did you know that missing HMRC payroll deadlines is one of the most common payroll mistakes made by accountants and practices? There are specific deadlines for payroll-related matters such as NI contributions and taxes. Missing these deadlines can lead to expensive penalties from the HMRC that can increase depending on the number of defaults.

Lack of records: It’s crucial to keep records as a part of your payroll process. It’s necessary to store payroll records for three years after the end of the tax year, and not doing so could lead to penalties. Some key records to be kept include employee pay, deductions, reports, payments to HMRC, and taxable expenses.

Not filing forms on time: Real-time information (RTI) reporting to the HMRC is a must, and it’s essential to report all new hires within a mandated deadline. Since April 2013, it’s been mandatory to report payroll matters to the HMRC on a monthly basis. Furthermore, you also need to file reports on a quarterly and year-end basis as well, which could lead to penalties, fees, and audits if missed.

Over-reliance on software: Payroll software can be extremely useful. However, over-reliance can lead to mistakes. It’s important to provide the right training and experience to employees to handle payroll software. Incorrect data inputs can lead to miscalculations, which could be expensive in the long run.

Use of incorrect tax codes: This is yet another common payroll error. Manual entry of these codes could lead to mistakes, especially if they are not cross-checked. There are various codes for different types of employees, such as new starters, those with a second income, those availing company benefits, furloughed employees, etc. Incorrect tax codes could lead to higher or lower taxes owed by employees. In such instances, it’s a good idea to double-check the codes with the HMRC and to regularly check and update records.

Not staying up-to-date with regulations: Rules and regulations related to payroll are everchanging. It’s important to ensure compliance and stay on top of these changes. Non-compliance can lead to hefty penalties, but staying up-to-date can ensure you avoid them.

Misclassifying employees: It’s easy to misclassify employees, especially when you’re dealing with temporary workers or contractors. It’s important to note that contractors and freelancers aren’t eligible for the same rights as employees. Mixing these two up can lead to incorrect deductions, which could result in potential fines. So, it’s important to have good recordkeeping and be up-to-date with the latest rules and legislation.

Not arranging documents systematically: Mismanagement of files can be a huge problem when managing payroll. It’s important to arrange all employee records and information in an orderly manner to ensure your payroll is accurate payroll. It can be difficult to maintain proper workflow if records are improperly maintained on digital servers.

Conclusion

Payroll management can be challenging and complex to manage in-house, especially due to the potential for costly errors. In order to maintain error-free payroll, it’s important to stay on top of the latest legislation, standardise processes, impart proper training, and keep meticulous records. Being aware of the common errors that could creep up is the first step towards running an efficient payroll function.

A simple solution for error-free payroll is outsourcing. Payroll outsourcing will enable your practice to avoid common mistakes, manage payroll efficiently, save costs, and free up more time to focus on strategic initiatives. Furthermore, outsourcing will help your practice gain access to payroll experts who are adept at the various nuances of payroll management and are up-to-date with everchanging legislation, thereby ensuring compliance.

Need Assistance with Payroll?

QXAS is a seasoned outsourcing provider with several years of expertise in payroll processing. With our payroll outsourcing services, your practice can boost efficiency, reduce costs, and ensure compliance while being assured of enhanced data security.

Reach out to our payroll experts at [email protected] or call +44 208 146 0808 for any of your payroll outsourcing queries.