7 Small Business Payroll Challenges

July 19, 2024
Posted by: Hannah Ingram
Category: Pay, Reward & Benefits

7 Small Business Payroll Challenges

Small business payroll challenges can be a time-consuming nuisance for businesses. Managing payroll is one of the most critical tasks for any small business, but often an overlooked one. After all, as a small business your main priorities include building trust with your customers, building your reputation and growing your business.

So the numerous challenges payroll processing brings can overwhelm you as a business owner, especially when you’re already spinning lots of plates.

The payroll process is fraught with challenges, from understanding complex regulations to correcting time-consuming errors. What’s more there’s always a new scenario cropping up when you least expect it, from managing Statutory Pay Rates to dealing with overpaying staff.

We’re delving into the common payroll pain points for small businesses, providing insights and solutions to help you navigate these challenges efficiently. Drawing from the experience of our payroll team at Talk Staff who specialise in outsourced payroll services.

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Insufficient Knowledge to Tackle Small Business Payroll

It’s the age-old question. Do you run payroll as a DIY option in your small business or do you want a DIFU (Do it for you) solution?

Small business owners are often highly skilled from an entrepreneurial point of view. These leadership skills include quick decision-making and risk management. However, business owners often lack the significant knowledge required to handle payroll themselves because it’s usually not their specialism.

When a topic is not your specialism this results in tasks taking longer or needing to be redone. Both of these are less than ideal when you are already at working capacity, potentially working long hours to handle the needs of your business.

Solution – Investing time in learning payroll management or seeking professional payroll support can save you from costly errors.

Payroll Errors

Caused by missing new payroll legislation or human error these are one of the big small business payroll challenges.

Without the correct knowledge and with the extra time burden it’s easy to make mistakes that can result in hefty fines from HMRC.

Payroll errors and misunderstandings are not only frustrating but time-consuming too. Incorrect payments, miscalculations, and compliance mistakes can take hours to rectify.

Staying up-to-date on payroll compliance is an added complication especially with the UK Government bringing in Employment Law changes which can lead to further errors.

These errors can lead to unhappy employees and potential legal issues. Small businesses already face recruitment challenges due to competing with larger companies offering enticing employee benefits which aren’t feasible for your small business budget. Therefore, paying people on time and correctly really matters.

Solution – Look to invest in the right in-house payroll support, providing them with regular compliance training. Alternatively seek a payroll bureau services. Seek out a UK payroll company who are renowned for their accuracy saving you valuable time and resources. You can check this by looking at payroll case studies and testimonials when choosing a provider.

Small Business Payroll Case Study – Derbyshire Charity

Too Much Payroll Admin

Managing payroll involves a significant amount of administrative work, including tracking hours and dealing with key payroll dates such as P11D deadlines and Year-End.

This admin work can be highly distracting, adding a huge burden on top of your existing weekly and monthly tasks. This lessons your ability to focus on important areas such as business growth, promotion and developing your people.

Whilst emerging technology is helping to streamline payroll processes through automation this also requires its own expertise & checking. As a result much of the work still requires manual processing.

Solution – Consider hiring in-house or outsourcing to payroll providers, allowing you to concentrate on strategic initiatives.

Systems Are Expensive for Small Business Payroll

Many small businesses experience a barrier when it comes to the cost of payroll systems.

However, many payroll software solutions are designed for larger companies and come with high price tags as a result. In addition, set-up costs for payroll systems often mean the cost is front-loaded.

Setting up payroll can also be a time-consuming endeavour especially when choosing the right solution not to mention ongoing maintenance and updates.

It’s essential to find cost-effective payroll solutions that cater to small businesses, ensuring you get the necessary features without breaking the bank.

Solution – Small businesses often don’t need an expensive payroll system to thrive, however partnering with an outsourced payroll provider can give you access to expensive payroll systems without the price tag attached.

Explore Small Business Payroll Services from Talk Staff

Dealing with Pensions

Managing employee pensions adds another layer of payroll complexity. Pension regulations change regularly, and non-compliance can result in significant penalties and other small business payroll challenges..

Understanding the specific pension requirements for your business and ensuring timely contributions are crucial. As well as ensuring you have a great onboarding HR policy to ensure new starters are added onto your pension correctly. Explore our ultimate list of HR policies.

Solution – Many outsourced payroll providers offer pension management and set up services, using professionals who can navigate the regulations efficiently can be hugely beneficial. You can also hire someone in-house who have experience of a similar payroll set ups to yours.

Keep Reading about Pension Services

When to hire in-house payroll specialists

One of the big challenges small businesses face is knowing the right time to hire for key in-house roles such as payroll, marketing and HR. It’s always a risk from both a job security and Return on Investment point of view.

Hiring a full-time payroll specialist can be expensive, especially for small businesses or start-ups with limited payroll needs. In addition, with payroll you’ll often find certain times in the week or month are very busy whereas other times are quiet.

Solution – In many cases, outsourcing payroll can be a more cost-effective solution. Outsourcing allows you to access professional payroll services without the overhead costs of a full-time employee. This approach ensures accuracy and compliance while freeing up your time to focus on other aspects of your business. Choosing the right payroll provider is key so they’ll scale with you as you grow if you plan to grow rapidly.

You can also partner with a payroll provider as a temporary solution until you’re sure hiring in-house is the right solution for your business.

If you’re keen to hire in-house, then forecasting this into your overall business plans and thinking strategically allows you to get the right people in at the right time.

Single Point of Failure – When your in-house payroll person goes away

Small businesses don’t usually have people to spare. Most staff are utilised to their full capacity.

This means if you have an in-house payroll team of one then this can turn into a nightmare when they aren’t around especially when it’s unexpected.

For example if they are on sick leave or annual leave you can be left with a significant admin burden and you may not have the right in-house knowledge to handle complexities. This is particularly problematic if it falls at a key time such as Year-End Payrolling.

Solution – Having a retained payroll provider on standby to answer questions can be useful although this often comes with planning, so it helps to be proactive rather than reactive.

It’s worth getting quotes from a few payroll providers if you’re looking at outsourcing your services. It’s really important to assess the human elements too so consider talking to your new providers in person. Do they respond quickly when you ring their general number for example?

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