Top 5 payroll mistakes made by SMEs….

18 December 2023

We’ve asked our HR and payroll outsourcing service JCHR to profile the top 5 payroll and HR mistakes that SMEs make, and in this article you can read about them from the payroll angle...

We asked JCHR Payroll’s MD Nick Butler to reflect on common issues experienced by SME employers. With 20+ years’ experience providing outsourced payroll, Nick’s team are one of the UK’s leading authorities on payroll resolutions, managing more than 800 payrolls for their clients. Here are his thoughts on the top 5 issues small and medium employers encounter with their payroll.   

“Auto-Enrolment Pension Errors: Failing to properly manage auto-enrolment for Workplace pensions creates the biggest headaches for employers, and so deserves its place in the top 5 issues. Even when an appropriate scheme is chosen the devil is in the day to day ‘administration’ of the pension scheme. SME’s will always benefit from outsourcing this headache to some degree. Some choose to outsource everything and others just the monthly uploads and employee communications.  

Not Keeping Up with Legislation: Payroll regulations and tax rates change frequently. SMEs often overlook or are unaware of updates, leading to non-compliance.  HMRC are committed in increasing the number of compliance reviews they carry out each year, so the risk of errors being spotted is increasing. Special attention should be taken from the new year (January 2024) as the Employers Class 1 NIC rate is reducing to 10% from 6th January, following the Autumn Statement. But this change will have a more complex impact upon cumulative Directors NIC computations come Period 12…..payrollers will know that, but how would anyone else?

Single point of failure: Perhaps not a mistake but certainly a considerable risk area for most SME’s. Not only “who does the payroll?” and “what happens when they are absent?” but “who even knows about the payroll when that happens?” We see a lot of SME’s outsourcing to small payroll bureaus, but these are often one-person operations, and employers may end up facing the same problem when the bureaus’ owner has a problem. Not paying staff is NOT an option and so a single point of failure is a huge potential issue for SMEs.

Misunderstanding Overtime and Holiday Pay: Failing to correctly calculate overtime or not including overtime when computing holiday pay can lead to underpayments, and in the worst case even legal issues. Holiday pay in particular is notoriously complex & there has been a raft of tribunal cases we have to take into account. SME owners often miss contractual or other normal allowances etc. that should be included. Incorrectly assessing holiday pay due in the case of long-term absentees is also common. Where clients need help in this area, we will always pass them to JCHR’s HR team, who will be happy to assist them, helping avoid the many pitfalls!  

Missing Deadlines: Whether it’s the submission of Real Time Information (RTI) to HMRC or pension contributions, missing deadlines can result in penalties and fines. If you miss the biggest deadline, “Pay day” you will certainly know it! 

This can be a result of the single point of failure I’ve mentioned earlier, but normally it’s simply because the person looking after payroll does so as an ‘add on’ to their day job – payroll is not their primary focus. As a BACS approved bureau, we’re aware that business owners choose to use us so they don’t have that Sunday afternoon feeling that they forgot to send the net payments!”

If you’re thinking of outsourcing your HR or payroll needs, why not contact JCHR? Call us on 01635 553 299, email us at, or contact us via our website and we’ll call you back.

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