Payroll is making news headlines. More specifically, systemic payroll errors: the result of Next and Asda’s ongoing underpayment of employees, something both employers put down to payroll vendor issues.
Affected employees, as well as those working in HR, payroll, and finance functions, will know this is not just a numbers problem fixable with a few tweaks and speedy backpay. It’s a real-world issue that has implications for workers’ wellbeing, as well as their ability to buy basic goods, pay bills and not fall into debt, while also affecting key business performance metrics.
Backdropped by the ongoing cost of living crisis, soaring inflation, and headline-making rows over fair pay, the impact of payroll issues – be it on an individual’s health and finances or a business's brand – are now exacerbated and magnified. So, how can those with payroll responsibilities get it right?
Payroll errors have ‘heartbreaking’ impact on employees
For Gethin Nadin, chief innovation officer at Benefex and bestselling HR author, the first step to getting payroll right is to understand the devastating impact errors can have on employees. “Even during better times, most of this country had circa £500 or less in savings. This doesn’t give a buffer for people when it comes to payroll mistakes,” he explained.
“Even a few days delay in pay can have a big impact: if there isn’t enough money for direct debits (usually set for payday) people end up in the red, get phone calls from creditors and end up stressed.”
This impact can be seen in the details of the Asda and Next payroll debacles. At Next, staff – some of whom are already paid less than the national living wage – were forced to turn to food banks after their employer made payroll mistakes.
At Asda, staff were underpaid by up to £500 at a time, resulting in employees skipping meals and turning to payday lenders. Some reported having their benefits and credit score impacted.
Nadine Houghton, GMB national officer for Asda, told the Guardian the situation was “heartbreaking”, adding that “during a cost of living crisis, low-paid workers must be able to rely on a level of decency from their employer that ensures they are paid for the work they do”.
What these real-world effects then cause is highlighted in recent Zellis research. Its Financial Wellbeing 2022 report found that more than half of employees who notice errors with their pay experience stress and anxiety.
This can then lead to health and relationship issues and the magnification of existing mental health problems which can then impact friends and family. This, Nadin said, shows the deep, interconnected impact of payroll errors.
“This should be really worrying for employers as most are now committing to employee wellbeing but if you're not paying someone accurately and on time and that's causing them stress you're not taking care of their wellbeing,” he said.
Understanding how payroll errors hit the business
According to Doug Betts, interim director of people and culture at Natural Power, who is cited in Zellis’ research, the effects of payroll problems can then affect the business culture.
He said: “Employees will forgive most things, but not payroll errors, especially at a time when so many people are already feeling the effects of the cost of living crisis.
As Zellis’ research found, payroll mistakes can then lead to loss of motivation and productivity issues. But it’s not just performance against key people and business metrics that payroll errors can impact: failure to pay an employee properly is considered an unauthorised deduction from wages and is covered by The Employment Rights Act.
Daniella McGuigan, partner at employment law firm Ogletree Deakins, added that employees can take their employer to a tribunal over unpaid wages, as well as appropriate additional financial losses they may have incurred as result. She added: “It could, therefore, be a costly mistake.”
In addition, Paul Britton, director of Britton and Time Solicitors, explained that if an employment contract specifies a date that an employee should be paid, failure to correctly pay on this date could be a breach of contract that lands an employer in County Court as opposed to a tribunal.
Furthermore, if payroll errors start to make headlines, this could also hit the bottom line. Britton added: “Consumers may then decide to turn away from their brand and associate themselves with more responsible companies.”
How to get payroll right
For Duncan Brown, principal associate at the Institute of Employment Studies (IES) and visiting professor at the University of Greenwich, a route towards better payroll can be built on an understanding of the importance of the centrality of payroll as well as the impact pay has on employees, especially those on low pay.
He explained: “Big employers shouldn't be taking any risks whatsoever with the delivery of any employee's pay, but especially their lowest-paid workers.
“Gender pay reporting and other factors have helped improve relations between payroll and HR [as a result of] payroll and HR professionals working more closely on issues rather than leaving payroll until the end of reward design.”
Sirsha Haldar, general manager of ADP UK, Ireland and South Africa, added getting payroll on the agenda as a priority, and therefore making sure it works, is achievable if there is a wider within-business understanding of the benefits getting it right brings.
He said: “Good payroll can be the gateway to higher growth and a stronger workforce and data related to payroll can help teams to manage and improve wider business and workforce strategies.”
Similarly, Dawn Lewis, content editor at the Reward & Employee Benefits Association, added that better financial education can help everyone at the firm buy into the importance of pay. “It's not all on employers as employees have a responsibility to check and understand their payslip, but sadly many don't check or understand or both.
“Financial education in the workplace often needs to go back to things such as educating people about what their payslip means, not just focus on more complex issues such as pensions,” she said.
It is education that Ken Pullar, CEO of the Chartered Institute of Payroll Professionals (CIPP), believes is part of ensuring payroll works effectively – alongside good process, good management and expertise, and effective communication and transparency for if it goes wrong.
He explained: “Payroll is complex and it shouldn’t be thought the ‘computer’ will just do it. Payroll professionals need to be fully cognisant of payroll rules and procedures and able to respond to employees knowledgeably.”
Pay, payroll, and pandemic lessons
While most businesses might think they understand the individual impact and strategic importance of payroll, for Brown there is a worry that many employers aren’t learning how to provide care, via pay, for some of their most vulnerable workers.
He added: “The pandemic highlighted the essential role and often awful pay and conditions of front-line retail workers. As a society, we don't seem to have learned the lesson from Covid and now the cost-of-living crisis.
“The deeper question [beyond how to get payroll right] is why these employers have so many employees, as the TUC put it, one payday away from poverty.”
An Asda spokesperson told the Guardian it was “imperative that our colleagues are paid correctly and on time and we are sorry this has not been the case for some of them”.
Next also told the publication that it was “acutely aware of the problems these payroll errors have caused some of our colleagues. We sincerely apologise to all those affected and assure them that we are resolving these problems as a priority.”