Payroll is Complicated – Get it Right First Time!

There's no getting away from it. Payroll is complicated. And because it involves people's money, you can't afford to get it wrong. It makes a lot of sense to hand it over lock, stock and barrel to an experienced bookkeeper, or at the very least make certain you do it right yourself, first time, every time.

Large scale payroll tax problems

The first step to payroll excellence is knowing what can go wrong if you slip up. It's sobering stuff. Take a look online and you see how the simplest payroll errors cost businesses a fortune in fines and penalties, plus damage to their brands and bucket-loads of corporate embarrassment.

Take one case in New Zealand, where a brand new payroll system designed for the country's 110,000 teachers, which took seven years to build, failed quite spectacularly. Amongst other things it sent personal information including bank details to the wrong schools, paid one teacher for 39 days when they'd actually worked 39 hours and overpaid one woman by 39,000 New Zealand dollars. At one stage more than 14,000 teachers and support staff were owed $12 million in back pay. It took a whopping $45m to fix the system.

At home in the UK, Lincolnshire Police's payroll people got it wrong, leaving hundreds of Community Support Officers unpaid. It was all down to problems with calculating changes in shift patterns. And more recently, Debenhams was fined £63,000 for a basic payroll error. Ouch.

There's a whole lot more that can go wrong. Just one small mistake can leave staff overpaid or underpaid. Plus there's a raft of rules and regulations to stay up to date with, as well as all manner of fines levied against you for mistakes, including late filing penalties, end of year penalties, penalties for inaccurate in-year submissions, late payment of PAYE and late submission of in-year returns. And that's just for a start.

Here are the most common mistakes that happen with payroll, mostly down to poor training and a lack of experience:

• Not keeping proper records and missing HMRC's deadlines - you must keep payroll records for 3 years in case auditors want to check your compliance. If you don't back them up properly, you might lose them
• Depending on the payroll system without questioning things - Always a mistake when software is only ever as good as the person who is entering the data and using the system
• Inexperienced staff often make mistakes, but HMRC don't make any allowances for inexperience – if you are prosecuted by HMRC, ignorance isn't a legal defence
• Confusion over things like Statutory Sick Pay can lead to fines
• Doing your payroll on different days each month can lead top all sorts of confusion – it's much better to do them on the same day every month
• Tax code mistakes are common, and far too many businesses just use those they're familiar with again and again. The right tax code appears on the employee's P45 or P46
• Under or over-payments happen thanks to confusion over shift changes and other fairly simple changes to the way your people do their job
• Incorrect year-end submissions, where minor errors are compounded over time to create really nasty mistakes, are a common mistake
• Changes in the rules catch people out – You need to stay on top of all the latest ways of doing payroll as well as the complex rules and regulations that surround it

Do you prefer being in full control of everything?

Some small business owners find it very hard to hand over their payroll, or anything else, for that matter! If you fall into the 'control freak' end of the spectrum, it's sensible to ask yourself, honestly, whether you're really suited to the task and have the time, patience and dedication to get it right first time, every time. If the honest answer is 'no', it's better to hand the whole thing over to people whose job it is to handle payroll, and who know the system and the law that supports it inside out.

Learning payroll from beginning to end

If you want to do it yourself and are determined to get it down pat, you'll find all the information you need here on the gov.uk website (https://www.gov.uk/running-payroll/overview).

Aben Bookkeeping is a Lewes based bookkeeping service based in Lewes. We provides bookkeeping services, including payroll to clients from Lewes, Brighton, Worthing, Shoreham, Newhaven, Seaford, Saltdean, Rottingdean and Woodingdean.

For more about our Payroll services see http://www.abenbookkeeping.co.uk/payroll