New research from Employment Hero reveals that 84% of 1,000 surveyed UK small business leaders have made payroll errors impacting employee pay and business cash flow. Alarmingly, 40% of these businesses faced penalties, with over a third incurring fines in the thousands (£) due to payroll mistakes. The complexity of recent tax changes including higher National Minimum Wage, increased National Insurance Contributions, and stricter employment law enforcement, has made payroll compliance a significant challenge.
Common Payroll Errors:
- Incorrect wage calculations (48%)
- Late or missing payments (38%)
- Incorrect hours calculations (36%)
- Wrong tax calculations (27%)
Over half of surveyed SMEs reported multiple payroll errors which can erode employee trust, lower morale, and reduce productivity. A notable example is Asda’s IT glitch in March 2025 which led to incorrect pay for nearly 10,000 workers, sparking a 48-hour strike in May over workplace issues.
Review your payroll processes to identify and address recurring errors. Consider investing in training or software to minimise mistakes.
Outdated Systems and Limited Expertise
Many SMEs rely on outdated payroll methods, with 31% using spreadsheets (44% for businesses with fewer than 20 employees). HMRC’s push to digitalise payroll through its Transformation Roadmap, including a new online PAYE service for 30 million taxpayers aims to simplify compliance. However, plans to require detailed employee hours data via Real Time Information (RTI) submissions have been delayed to April 2026 due to employer concerns about implementation challenges.
Employment Hero’s survey found that 70% of SMEs worry about keeping up with evolving payroll technology, 38% cite limited expertise, and 36% lack time to manage payroll effectively. Outsourcing is a common solution, but costs an average of £2,724 monthly, ranging from £1,625 for smaller SMEs to £3,408 for larger ones.
Evaluate whether your current payroll system meets compliance needs. Explore HMRC’s digital tools at GOV.UK to streamline processes.
The Payroll Centre can significantly aid small businesses in achieving payroll compliance by addressing the challenges highlighted in Employment Hero’s research. With 84% of UK SMEs making payroll errors due to complex tax regulations, such as increased National Insurance Contributions and National Minimum Wage changes, the Payroll Centre offers expert guidance and training to navigate these intricacies. By providing tailored support and up-to-date knowledge on evolving requirements, such as the delayed RTI hours reporting until April 2026, the Payroll Centre ensures accurate wage calculations, timely payments, and correct tax submissions, reducing the risk of costly penalties and fostering employee trust.
