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24th November 2022

How to Avoid Payroll The Payroll Pitfalls of Big Businesses

Continuous payroll mistakes can lead to huge consequences for companies, such as fines and loss in profit. Below will explore three huge companies and the consequences they faced, as a result of frequent payroll mistakes. Learn from their mistakes so you don’t have to.

Minimum Wage error costs John Lewis £36 million

In 2017 John Lewis took a huge hit, as a result of minimum wage errors and breaching National Minimum Wage rules. This isn’t the first time the retailers found themselves in hot water after making costly payroll mistakes.

This occurred only three years after John Lewis had to pay £40 million to employees due to holiday pay miscalculations over seven years.

Unfortunately John Lewis didn’t realise they were making payroll mistakes and blamed it on a technicality. The pay issues only affected those paid hourly, as their pay was technically below minimum wage, as a result of the company using pay averaging since 2006.

The disadvantages of in house payroll

With almost all employees who work a five day work week being entitled to 28 days of paid annual leave, working out payroll in house for thousands of employees can lead to mistakes being made. In theory, working out holiday entitlement should be easy, however when you add zero hour contracts, casual hours and overtime in, it can become really difficult.

Despite this, outsourcing payroll can help you avoid mistakes, due to software being able to calculate holiday entitlement and ensure employees are paid correctly and on time. This will also help companies stay compliant and avoid any tricky situations.

Tesco compensates 140,000 current and former employees 

In 2017 Tesco had to compensate 140,000 current and former staff members after breaching Minimum Wage rules and paying them below that national living wage. The majority of staff were owed £40 each with some being owed more, costing Tesco £9.7 million to rectify.

This mistake was found during the implementation of a new payroll system where employees voluntary contributions to pensions and childcare voucher schemes, led to them being paid below national living wage. As a result, Tesco had to compensate both current and former employees.

Below are multiple lessons Tesco’s mistakes can teach other companies:

-        Using a reputable payroll company will help you highlight any payroll issues you may have and help you fix them.

-        Employee benefits and vouchers often sit under HR

-        If HR and payroll aren’t integrated this causes problems and mistake similar to Tesco’s

-        When HR and payroll teams communicate, payroll and HR mistakes can be reduced significantly.

-        You should outsource payroll from CIPP registered experts as they understand the difficulties and constantly changing payroll regulations, helping to cover your back

Asda staff report underpayments of £100 - £500

This year Asda’s payroll mistakes have caused staff to have to take out loans, not pay bills and have to use food banks to try and get by. Asda admitted to the Scottish Parliament that their external payroll company made 11,000 payroll mistakes that affected 5,500 employees.

Some staff members were even overpaid, meaning the clawbacks the next month meant that staff lost their benefits the following month.

Despite the huge impacts Asda’s mistakes have had on staff it has been stated that “Asda knows it is a massive issue, but sadly isn’t doing enough to put this right – they refuse to invest the money needed in the payroll operation to sort this out.."

It’s extremely important that companies look after their employees by ensuring they’re paid correctly and on time. Outsourcing payroll allows you to minimise your mistakes and ensure employees are looked after, helping to improve brand reputation and employee morale.

Prevention over cure through outsourcing payroll

In any situation, Payroll mistakes have a huge impact on employees' lives. However with the cost of living increasing, payroll mistakes are only having bigger impacts. Due to this, payroll and HR companies need to take extra measures to ensure they understand the payroll process to help prevent future mistakes occurring.

Updating your payroll system will help to minimise future payroll mistakes, allowing your team to focus on more critical tasks, rather than undertaking tasks to fix issues.

Book a demo with Payescape, to see how we can help minimise payroll mistakes.

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