Payroll mistakes cost organizations more than time. According to a CIPP survey, 1 in 5 UK employees say they changed jobs after being paid late or inaccurately.
HR leaders know this pain well. Rules change fast, employees expect accuracy, and even one wrong submission can trigger penalties or a loss of trust.
After reviewing the most common issues across HR teams and analyzing recent compliance updates, seven patterns kept emerging. These pitfalls slow teams down, create unnecessary stress, and expose the business to risk.
The good news: each one is fixable.
Here are the seven payroll and tax mistakes holding HR teams back and what to do instead.
Pitfall #1: Misclassifying Employees and Contractors
This is one of the most significant compliance issues for HR and finance teams.
Many companies get confused about whether a worker should be treated as:
- An employee
- A contractor
- A temporary worker
- A remote worker in another country
When a team gets this wrong, the cost can be high. Misclassification can often result in back taxes, penalties, and even legal disputes.
What to do instead:
- Review each role based on control, hours, and responsibilities
- Update contracts and job descriptions
- Run regular audits with help from your finance team or an accountant
- Check local laws if workers are based in different countries
Pitfall #2: Incorrect or Late Payroll Submissions
Late or wrong submissions create problems on two sides:
For employees: They lose trust in the company when their pay is incorrect or delayed.
For the HR team: You deal with more complaints, more fixes, and possible fines.
What to do instead:
Use a payroll calendar that everyone follows
Build a simple approval flow that does not require multiple layers
Use tools that automate calculations and reminders
Double-check data before finalising submissions
A structured process and support from reliable accounting firms like THP make payroll submissions more accurate and reduce unnecessary delays.
Pitfall #3: Not Staying Updated With Tax Regulation Changes
Tax and payroll laws change more often than many HR teams expect. Missing these updates can lead to wrong deductions, wrong filings, and compliance issues.
For example:
HMRC updates tax codes and payroll guidance every year. Local rules also change for pensions, benefits, and student loan deductions.
A global survey found that up to 56% of HR leaders feel only partially prepared or unprepared at all for ongoing regulatory changes.
What to do instead:
Check government update pages at least once a month
Schedule quarterly compliance reviews
Provide training for HR and payroll team members
Work with accountants who send early alerts about tax changes
Pitfall #4: Poor Recordkeeping and Missing Documentation
When HR teams store data in different places, use spreadsheets, or keep outdated copies, errors appear quickly. This creates problems during audits, reporting, and even simple employee queries.
Common issues include:
Missing timesheets
Incorrect overtime logs
Old employee details
Conflicting versions of payroll files
What to do instead:
Move to digital systems with proper access control
Store all documents in one organized folder structure
Use naming rules so files stay consistent
Follow clear retention policies for payroll data
Accountants can also help set up audit-ready structures to make sure nothing gets missed.
Pitfall #5: Failing to Manage Employee Benefits Correctly
Benefits create confusion because each type is treated differently for tax purposes.
Examples include:
Pensions
Bonuses
Health benefits
Company cars
Travel allowances
Training support
When benefits are recorded wrongly, payroll reports become inaccurate, and employees may pay the wrong amount of tax.
What to do instead:
Track each benefit separately
Know which benefits are taxable and which are exempt
Use payroll software that supports benefit categories
Review benefits with your accountant during yearly planning
Pitfall #6: Overreliance on Manual Calculations
Manual work increases both errors and workload.
Common manual mistakes include:
Wrong tax codes
Incorrect overtime pay
Wrong holiday pay
Missing deductions
When the same errors keep recurring, the time spent fixing them becomes more expensive than upgrading the process.
What to do instead:
Use modern payroll software with built-in tax rules
Automate recurring tasks like pension contributions
Create standard templates for common pay scenarios
Have an accountant review calculations when needed
Automation improves accuracy and reduces stress for HR teams.
Pitfall #7: HR and Finance Working in Silos
Many problems arise because HR and finance do not work closely together.
This leads to:
Duplicate data
Delayed approvals
Miscommunication
Incorrect payroll reports
Slow responses to tax updates
Here is a quick comparison:
Issue | HR Impact | Finance Impact |
Data stored in different systems | More admin work | Inaccurate reporting |
Delayed approvals | Late payroll | Compliance risk |
No shared dashboard | Confusion about pay changes | Errors during audits |
What to do instead:
Use shared tools and dashboards
Hold a monthly HR-finance review
Agree on a simple workflow for pay changes
Allow both teams to access the same payroll data
Conclusion
Payroll and tax errors can slow HR teams down, affect employee trust, and create compliance issues. Most of these issues stem from outdated processes, unclear systems, and gaps between HR and finance.
But these issues are fixable.
With better tools, clear workflows, regular reviews, and the support of accounting specialists, HR teams can run payroll smoothly and focus more on their people.
Avoiding these seven pitfalls helps the entire organization work more effectively and remain compliant. And when HR and finance work as one, everyone wins.
