Are you losing out by handling your own payroll?

Running a business is a challenge full of crucial responsibilities – from creating and marketing products, to planning for growth, to looking after staff; the task list is endless.

So to run your own payroll is yet another burden and one which many business owners get wrong.

At Optimum, our long-established payroll bureau is growing, because increasingly business owners are seeing the value in outsourcing this essential function.

And what we are often finding, when we take over the payroll, is a pattern of common mistakes that have been made.

Here are some of the errors that businesses make when running their own payroll.

1. Not claiming Employment Allowance

Employment Allowance enables eligible employers to reduce their annual National Insurance liability by up to £10,500. They pay less employers’ Class 1 National Insurance each time the payroll is run, until the £10,500 has been used up or the tax year ends (whichever is sooner).

Once set up, Employment Allowance used to be deducted automatically year after year. This is no longer the case, which means many employers are inadvertently failing to make use of this allowance. We recently saved a client £20,000 by spotting that they weren’t claiming Employment Allowance.

2. Incorrectly setting up pensions

Incorrectly setting up a pension at payroll can lead to financial losses, both for the employer and the employee, and potentially result in fines or penalties from the Pensions Regulator. It can also lead to disputes with the pension provider.

There are also ongoing pension responsibilities: employers are legally required to give employees specific information when they become eligible, when they are enrolled, if they are postponed and if they chose to opt-in or opt-out.

Employers must also ensure they re-enrol all eligible jobholders within their cylindrical re-enrolment period every three years and complete the associated Declaration of Compliance with The Pensions Regulator.

3. Miscalculating pay

Getting employees’ pay wrong – as well as miscalculating overtime, bonuses, commissions and deductions (like benefits) – can result in staff being overpaid or underpaid. Either will undermine the confidence your team have in you.

National Minimum Wage is a big one here; many employers are unaware of NMW changes and when they need applying, not just when the rate goes up in April, but as employees go through the age brackets, or change from first to second year apprentices.

Employers often fail to properly account for there being more than 52 weeks per year (there are actually 52 weeks, plus one day – or plus two days in a leap year), or account for travel/meetings/training time, if it is a requirement during the working day.

Underpayment of NMW is taken very seriously by HMRC, attracting penalties of up to £20,000 per employee. HMRC may also action criminal legal proceedings, and publish the names of employers with The Department for Business and Trade.

4. Incorrect tax withholding and remittance

Failing to withhold the correct amount of taxes (income tax, National Insurance) or not remitting these to HMRC can result in penalties.

However, for a payroll bureau like Optimum’s, it is a simple process to keep on track with electronic tax code updates directly from HMRC through payroll software.

5. Late payments

Delaying processing payroll means employees are not paid on time. This can cause financial hardship, damage trust in an employer, and can also lead to reputational harm.

At Optimum, we have a new payment processing system that allows us to upload all of the employee net payments directly from the payroll system, scheduling for payday - this saves the employer time and avoids risk of human error.

6. Remaining compliant

Rules and regulations around payroll are constantly evolving, so business owners running their own payroll will need to keep up to date with these.

For example, the rules around submitted details of benefits and expenses to HMRC are changing from April 2027.

At Optimum, we are already preparing our payroll clients for this change – many (even most) business owners running their own payroll are unlikely to be as ready for the change. Much of the more basic payroll software doesn’t have the facility to specifically payroll benefits in kind, and even those that do require you to manually calculate the cash benefit to enter each period – more complex software allows for a much more efficient process ensuring correct figures and adjustments throughout the year.

These are just a handful of the problems we come across, that business owners have experienced, or created, when trying to run their own payroll.

Outsourcing to a professional payroll team, such as Optimum’s, will bring a myriad of benefits including reduced errors, ensured compliance, time savings, and access to specialised expertise.