Employees rely on their employers to pay them correctly and on time. When that doesn’t happen, it can at the very least cause annoyance. But the consequences could go well beyond that, leading to more serious repercussions both for the employees involved and ultimately for your business. Here are just five ways that payroll mistakes can end up doing damage.
1. Employee disengagement
A single instance involving a small amount of money is unlikely to be catastrophic but it’s not exactly going to enhance you as a competent employer in that person’s eyes. While there are practical things you can quickly do to sort out the error, it doesn’t look great.
But a more significant error could cause personal financial problems for the individual or individuals involved. It can affect their life in several ways. Perhaps they aren’t able to make other payments. They could end up facing bank charges as a result. It can cause a great deal of stress and anguish. It only has to happen once to have a negative impact, damaging employee goodwill and engagement. If it’s a significant mistake, or if it happens several times, you run the risk of convincing employees that it’s time to look elsewhere too.
2. Losing money from an overpayment
There are circumstances where you are legally within your rights to try to get an overpayment back off the employee. But even a one-off overpayment of a small amount that can be taken out of future payments doesn’t leave a great impression on the employee. What about more contentious scenarios? Perhaps the employee didn’t realise there’s been an overpayment and has already spent it. Maybe there have been regular overpayments going on that have mounted up into a sizable total overpayment. You may even be faced with a situation where the employee has left the company a while back and the error’s only just been identified through an audit.
Embarking on rectifying these kinds of overpayments can be daunting and stressful. So with all the complexities involved, including possible court action, you might end up deciding against getting the money back off an employee. On the positive side, that spares your employee’s feelings and avoids any negativity that could have resulted in that respect. But from a financial viewpoint, it can be anything from a small frustrating cost to a damaging hit to your bottom line.
3. Time lost on correcting errors
If you identify payroll mistakes, it needs to be followed up on. Errors must be corrected, records must be updated, tax payments need to be adjusted and pension contributions appropriately calculated. Whatever you decide about the best way to handle an error, you’ve still lost time going through the process of making your decisions and sorting out the corrections where needed.
4. Penalties due to non-compliance
Complying with frequently shifting payroll and employment legislation might be challenging – but comply you must. And if you get it wrong, the reality is that you might be putting your company at risk of facing substantial penalties or other repercussions. While you might think the ‘danger zone’ only exists where the law gets complicated that’s not necessarily the case either. A 2017 report by the CIPD on employee attitudes to pay and pensions suggests that around 300,000 UK employees don’t even get any form of a payslip – meaning their employer’s failing to comply with one of the most basic requirements and breaking the law as a result.
5. A damaged reputation-compliance
A few small payroll mistakes might not be too detrimental to your business. But what about a substantial error for a large amount or one that goes undetected for a period of time and builds up into a significant problem? You might think it wouldn’t happen to you but many organisations, including well-known names such as John Lewis, have had to own up to payroll mistakes and take the hit in terms of negative publicity.
Would you like the reassurance of having access to professionally qualified payroll experts, along with systems that are continually updated for full payroll legislation compliance? If so, please get in touch with us for a chat about the payroll outsourcing and software options we can provide you with.