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Common payroll pitfalls – and how to avoid them

Payrolls are the bane of many small business owners’ life. Not only do you have to give your hard-earned money away, but you have to do it in such a difficult manner! Gone are the times when you’d bung your employees a few bob in cash at the end of the day.

And it’s not just the inconvenience – doing it wrong could see you in a lot of costly trouble, even if it’s a genuine mistake. Luckily the payroll experts at Henderson Loggie told us about the most common mistakes – and what to do about them!

Confusing basic rate tax with the emergency tax code

The basic rate code (20% on all earnings) is often mistaken for the emergency tax code (currently 944L applied on a week one month one basis). If you get this wrong, you’ll be paying the wrong amount of tax and it will be costly and inconvenient. To ensure you’re totally up to date with which tax code is applicable to the employee, check here – it’s worth getting it right first time.

Failure to understand how to treat certain payments/deductions for tax/NIC purposes

When it comes to expenses and benefits, make sure you get the payments and deductions right. This covers childcare, company cars, telephones, travelling expenses… it’s not quite as simple as handing your employee a fiver for their lunch and leaving it at that. They all require national insurance contributions. This guide talks you through the different kinds.

Not keeping up to date with statutory obligations

There are some statutory obligations that all employees need to meet, such as payment of statutory sick pay. You’ve probably heard of that one already – but what about statutory maternity and paternity pay and statutory adoption pay? It’s also really important to pay PAYE payments by the correct date. And there are other things to keep up with too…

Staying on top of legislation changes

From Real Time Information, Auto Enrolment, to the forever changing National Minimum Wage, there are a dizzying amount of things to stay on top of.

The National Minimum Wage, in particular, is a tricky one. It changes annually on the 1st October and has FIVE different age categories for workers to fall into – so not only do you need to keep an eye on the dates, but you also need to rememberthe birth dates of your employees. National Luckily, a handy minimum Wage calculator, can be found here.

Relying too much on software

Software is amazing for doing your payroll correctly – but you also need to have some basic knowledge of how to do it manually. If you’re on autopilot, relying purely on the software/calculation doing the processing and getting it correct, any mistakes at the beginning will continue forever. Plus, if an employee has a payroll query, you won’t be able to answer them. But putting in some time to understanding tax codes will help your knowledge of how to calculate the employee’s tax manually.