Employee Relations

Three common mistakes employers make when paying employees

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I once worked for a company, where the management team would refuse to hand out payslips until the very last minute of the day, on the day before payday. The reason for this was because every month, without fail, between 20-40% of employees would be paid wrong. And the company didn’t want employees to spend a single minute where they could be working, complaining about pay.

You might think this sounds like a terrible way to run a business. You might also think that after just one horrific pay run, the company should be working on fixing their mistakes, rather than simply hiding from the inevitable explosion on the evening before payday, month after month. You’d be right on both counts.

But here’s the thing. Paying employees properly can actually be quite difficult, and it’s not just small, inexperienced companies that make mistakes. Supermarket giant Tesco had to shell out £9.7m in March this year, after a technical error moving to a new payroll software meant they underpaid around 140,000 employees. When integrating any new software it's crucial to have a clearly defined implementation process to avoid any data migration and upload errors.

Overpaying or underpaying – it doesn’t matter, both are bad

On the subject of underpaying employees, some companies seem to believe that underpaying is worse than overpaying, whereas others believe the opposite to be true. In actual fact, accidentally overpaying employees can be just as bad as accidentally underpaying them – both sides of the coin have their own unique set of consequences.

  • Underpayments can deliver financial shocks to your company. If you aren’t paying employees enough, you’ll need to pay them what they’re owed. Depending on how long it has been happening for, this can come as a huge blow further down the line.
  • Overpayments can cause financial hardship for employees. Think about it the other way around. Imagine finding out you’ve overpaid an employee by a significant amount? You might think this is OK, because you can claim the money back. But this can cause serious hardship for the employee in question – especially if they’ve already spent the money, or if they’ve become accustomed to living on a higher income.

If you have accidentally overpaid an employee, you might find one of our earlier articles useful: What should you do if you accidentally overpay an employee. Of course, in an ideal world, you’ll want to be paying employees properly! So, I’m now going to look at some of the most common mistakes employers make when paying employees – and some best practice tips to help you avoid falling into these traps yourself.

Three common payment mistakes for employers

The following is not an extensive list of every mistake you could possibly make in your endeavour to ensure you’re paying employees properly. But it’s a good list of common pitfalls that many employers discover the hard way:

  • Falling behind on new legislation that affects pay.
  • Poor timesheet tracking.
  • Human error during payroll.

There are so many other things that can go wrong, but is seems that the above items are the most widely reported by employers. Let’s take a look at them in a little more detail.

Stay up to date with the latest employment laws

In 2015, The Independent reported how the world’s largest fashion retailer, H&M, landed in hot water after failing to pay all staff at least minimum wage. Sure, they only fell short by a total of £2,605, spread across 540 employees. And sure, they blamed it on a computer error. But the fact remains that they failed to meet one of their most basic legal obligations as an employer, and were fined as a result.

Did you know that since its introduction in April 1999, the rules for National Minimum Wage have been updated 19 times? And this is just one of many laws that apply to paying employees properly. You have other things to take into account, too – like applying the correct tax codes.

H&M proves that you’re never too big to land in trouble for falling short of the law. Of course, you’re never too small, either – and when you’re smaller, it’s often harder, because you probably don’t have a dedicated legal team to help you keep you on top of things.

There are now several organisations and websites out there, who help small business owners stay up to date with employment law. If you don’t already, I can recommend you subscribe to the following organisations:

  • The CIPD Knowledge Hub. This link will take you directly to the Employment Law area of the CIPD’s Knowledge Hub. This provides a wealth of employment law information, as well as updates to existing legislation when something changes.
  • The Guardian. You can’t rely on a media platform to update you on every single legal change that comes about, but if you like the idea of getting major employment law news delivered in more of a news format, then The Guardian’s Employment Law area is a great place to go.
  • HR Law Live. Set up by employment law specialists Mills & Reeve, this relatively new website dedicated to employment law news, as well as commentary on current events, is both insightful, entertaining, and looks like it has a bright future.

Assign timesheets that link directly to payroll for specific projects

Timesheet problems can take many forms, and can cause numerous problems. For example:

  • Assigning the wrong payment codes to the wrong projects. This can see you accidentally paying a significantly higher or lower rate for work that was completed. For example, if an employee works 15 hours of overtime, but their timesheet accidentally records this as regular working hours.
  • Failing to pay for time worked completely. If timesheets don’t get accurately migrated over into your payroll software, you could end up failing to pay employees entirely, for work that was completed.

You may already know that our Sage Payroll integration already lets you share timesheets and assignments data from within People HR, with your payroll software directly. There’s a full tutorial here.

And earlier this year, we introduced a feature that lets you set up specific projects that are restricted to certain groups of people. This helps prevent employees from submitting timesheets for the wrong projects, meaning you’re less likely to pay them at the wrong rate. It also makes employees’ jobs easier by removing clutter.

You can learn more about the improvements we made to timesheets and assignments here.

Avoid data duplication and automate whatever you can

For one-off mistakes that can cost a real fortune, you want to avoid as much manual entry as possible. This is because every time you have to input data, there’s a chance you’ll make a mistake.

Some of you might remember the story I wrote about, of a company that accidentally paid an employee 100 times their wage – a mistake that cost them over €19,000.

Human error is one of the most expensive, yet one of the easiest mistakes to make, when it comes to paying employees properly. Wherever possible, automate as much data entry as you possibly can. Providing the information is correctly entered in the first place, there will be no issue with errors due to manual data duplication.

How do you avoid making mistakes when paying employees?

If you’ve ever made a blunder on payday, payroll software could help streamline and prevent errors in your process. Watch our 4 minute demo.