You’d think we’d have cracked payroll by now – it’s 2025! AI’s writing poems, your fridge can reorder the milk, and yet there are still payroll errors causing problems for businesses and leading employees to mistrust their payslips.
Here are the most common payroll errors we’re still seeing, why they persist, and how UK businesses can avoid them.
1. Missing HMRC Deadlines
Even in the age of automation, plenty of SMEs still miss monthly RTI (Real Time Information) submissions.
Why it happens: Manual payroll processes, disjointed systems, or someone forgetting to hit “submit” in time.
Why it matters: Penalties stack up quickly, and HMRC rarely gives second chances. Key deadlines need to be part of every payroll calendar.
2. Incorrect Tax Codes – A Costly Payroll Error
It only takes one wrong digit in a tax code to miscalculate pay for an employee.
Why it happens: Starters, leavers, or second jobs where emergency codes don’t get updated.
Why it matters: Employee pay errors damage trust, create compliance issues, and sometimes take months to resolve.
3. Miscalculating Holiday Pay
Especially for irregular-hour workers or contractors.
Why it happens: Holiday rules aren’t simple, and manual tracking in a spreadsheet is risky.
Why it matters: Underpayment can lead to employment law claims, while overpayment damages margins.
4. Payroll Deductions and Pension Errors
Auto-enrolment is a legal requirement, but payroll deductions for pensions still get missed.
Why it happens: No proper process or admin oversight.
Why it matters: Fines start at £400 and escalate quickly. Poorly handled payroll deductions are one of the most common mistakes in SMEs.
5. Overreliance on Spreadsheets
Excel may feel familiar, but it’s risky for payroll.
Why it happens: Legacy habits and a lack of investment in a proper payroll system.
Why it matters: Payroll data can be corrupted, security is weak, and payroll records may not be audit-ready.
6. Wrong Pay Rates and Overtime Pay
An easy mistake, especially for hourly workers, contractors, or those with variable overtime pay.
Why it happens: No audit trail or last-minute updates missing payroll cut-off.
Why it matters: One wrong rate compounds over time, creating significant pay issues and frustrated employees.
7. Incorrectly Processed Sick Pay or Parental Leave
Statutory Sick Pay (SSP), maternity, and paternity leave each have their own eligibility rules.
Why it happens: Employers assume rather than check.
Why it matters: Errors breach payroll legislation and can result in compliance issues under UK employment law.
8. Missing Payments to HMRC
Running payroll doesn’t automatically mean PAYE has been paid.
Why it happens: Finance and payroll teams aren’t aligned.
Why it matters: Late payments lead to HMRC fines, interest, and potential payroll compliance risks.
9. National Insurance Contribution Errors
Particularly when someone’s NI category changes.
Why it happens: Poor system alerts or manual oversight.
Why it matters: Both overpayments and underpayments cause payroll issues that take time to reconcile.
10. Payslip Clarity and Payroll Data Transparency
Employees legally must get payslips, but many find them confusing.
Why it happens: Poorly designed payslips and inconsistent payroll deductions.
Why it matters: Employees lose confidence in their payroll data and morale drops when errors aren’t explained clearly.
Other Payroll Mistakes UK Businesses Should Watch For
Beyond these top 10, there are other common mistakes that can trip up SMEs:
- Failing to secure sensitive employee data, leading to data breaches.
- Not storing accurate payroll records for the required six years.
- Overlooking overtime pay rules and creating frustrated employees.
- Mismanaging third-party benefits deductions or under-reporting taxable perks.
Each of these creates compliance issues and increases the risk of fines or employee disputes.
The Risks of Poor Payroll Processes
Getting payroll wrong is more than an admin problem. It affects:
- Compliance – failing to follow payroll regulations or employment law.
- Morale – mistakes create mistrust and frustrated employees.
- Security – sensitive employee information mishandled leads to reputational damage.
An accurate payroll system is vital for effective payroll management.
Why Outsourcing Isn’t Always the Answer
Some businesses look to payroll outsourcing as a quick fix. While a payroll partner can help, outsourcing doesn’t remove accountability. Employers still need to ensure payroll compliance and protect employee data. Outsourcing can also mean less control over resolving day-to-day pay issues.
Moving Towards Effective Payroll Management
For UK businesses, the best safeguard is an integrated payroll system designed for SMEs. Effective payroll management means automating payroll calculations, syncing HR and payroll data, and eliminating reliance on spreadsheets. This helps protect your workforce, reduce payroll mistakes, and safeguard against compliance issues.
Meet Aigence: Smart Payroll for UK Small Business Owners
Aigence is a payroll platform built for UK SMEs to take control of payroll fast. From gross pay and payroll deductions to RTI and workplace pensions, our AI-powered platform simplifies payroll processes, reduces payroll errors, and protects sensitive employee information.
With Aigence, accurate payroll isn’t a headache – it’s built-in.
👉 Start your free trial today at www.aigence.io
