Payroll – getting it wrong

We recently looked at the importance of organisations getting payroll right. We also weighed-up some of the ‘for’ and ‘against’ arguments around outsourcing payroll. In this blog we’ll explore some other factors, including what can happen when a business gets its payroll wrong. We’ll also look at a potential game changer.

Getting it wrong – some stats

Some of the findings in our recent report are an eye-opener:

• 94% of British businesses reported payroll mistakes during 2020 and 2021.
• 61% of employees have been impacted by late or incorrect pay.
• 50% of employees would consider leaving if their pay was repeatedly wrong.
• 70% of companies include a manual element in their payroll processes.
• Over 30% of organisations rely on paper timesheets and forms.

No wonder there are problems.

So how do these things impact employees?

According to Occam Investing, 24% of 25-34-year-olds are over £5,000 in debt (largely as a result of student loans) and at least 25% of people under 54 either have no savings or are in debt. With so many people experiencing this kind of financial pressure it’s little wonder stress levels rocket when they get paid late or incorrectly.

Getting it wrong – the impact

The negative impact of payroll mistakes can be significant. Late or incorrect pays have led to people having to borrow money from family or friends, using credit cards to buy food and other essentials and even taking out short-term loans. Not surprisingly, young people are more often affected than older workers.

The implications in getting payroll wrong include:

• Unhappy, demotivated employees – leading to possible departures.
• Legislative and compliance issues with HMRC; subsequent censure and possible fines.
• Correcting underpayments – leading to potential ‘surprise’ costs for a business if corrected at a later date.
• Correcting overpayments – leading to possible loss of credibility among employees.

Game changer?

Emerging technologies change business operations daily. Add Millennial and Gen Z thinking into the mix and the result sits somewhere between exciting and challenging. ‘Flexible pay’ or ‘pay-on-demand’ fits neatly into this category.

It’s a simple concept – workers access earned wages as they have accrued. Worked 14 days and want to get paid? You get paid; all deductions are taken care of. Work three days and want to get paid for those three days? You get paid. It’s not credit and it’s not a loan; you only get paid for what you’ve done.

It will surely gather momentum as Millennials and particularly Gen Z come to dominate workplaces. A demographic used to instant access and immediacy is naturally going to question the logic and fairness of being paid three or four weeks in arrears. Many will struggle to understand why they can’t immediately access money they are entitled to. In time there can be little doubt that this concept, and its execution, will gain traction.

There are potential benefits to pay-on-demand:

• It will help lower earners budget and balance income vs outgoings and avoid getting into debt.
• Some employees will take on extra shifts if they get paid more promptly – rather than waiting until month end, or, conceivably, the following month.
• Companies adopting pay-on-demand will become employers of choice.
• Improved retention rates.

Evidence indicates that when people use their own hard-earned money, they are more prudent than if using a credit card. Even just having visibility of earnings can have a positive effect. People who use flexible pay systems often check what they’re owed every couple of days.

Flexible pay reduces stress. To some degree it can also act in a financial education capacity. Seeing what you have earned so far in a month can impact positively on mental health. Money worries, on the other hand, generally have a negative impact on mental health.

Despite some skepticism – only 12% of respondents in a 2020 CIPP survey thought the concept an attractive one – it’s hard not to imagine it gathering momentum.

Watch this space.

Getting it right

Whatever new systems or processes you take on, or whether you pay monthly, weekly, fortnightly or even on demand, there’s one non-negotiable: you must get your payroll right. Your employees and their families depend on it. And getting it wrong will also potentially hurt the business.

Disgruntled employees, reputational damage and possible legal censure aren’t things that are associated with peak business performance. Accurate payroll is a foundation stone for well-run, successful businesses. The importance of getting payroll right can’t be underestimated.

Also take a look at our Payroll – getting it right blog article from December 2021.