Payroll Mistakes That Could Cost Your Somerset Business Money

In small firms, owners often juggle many roles, including payroll. Payroll administration is complex, and with regular roll-outs of new rules and updates, payroll has become more complicated. That means it’s important to get it right so you can avoid adding unnecessary costs due to avoidable mistakes.

Summary

Payroll mistakes can be costly for Somerset businesses, particularly small employers managing payroll alongside their other responsibilities. Errors with National Minimum Wage rates, apprentice pay, pension contributions, Real Time Information (RTI), working hours, and employee tax codes can result in additional costs, penalties, underpayments, and loss of employee trust. This guide explains some of the most common payroll mistakes and how Somerset employers can reduce the risk of getting payroll wrong.

*Please note all information is correct as of September 2026. Please always check the current information for your circumstances, or consult a professional payroll provider like Apt Payroll

Key Facts

• National Minimum Wage (NMW): Employers need to make sure employees receive the correct rate for their age and circumstances, including when an employee reaches a new age bracket or an apprentice becomes eligible for a different rate.

• Deductions: Certain deductions, including some uniform costs and salary sacrifice arrangements, can affect whether an employee receives at least the applicable National Minimum Wage.

• Hours worked: Employees should be paid for all working time, including additional work before or after a shift where applicable.

• Workplace pensions: Incorrect employee assessment, pensionable earnings, or contribution calculations can lead to payroll errors and additional costs.

• Real Time Information (RTI) submissions: Employers must provide HMRC with payroll information through Real Time Information when employees are paid.

• Tax codes: Using the wrong tax code when onboarding a new employee can result in the employee paying too much or too little tax.

• Employee trust: Repeated or significant payroll errors can create financial difficulties for employees and potentially contribute to staff turnover.

Common Payroll Mistakes Covered in This Guide

• Paying the wrong National Minimum Wage (NMW) rate

• Forgetting when an apprentice moves to a higher rate

• Allowing deductions to reduce pay below the NMW

• Failing to pay for all hours worked

• Calculating pension contributions incorrectly

• Missing or submitting Real Time Information (RTI) late

• Applying the wrong tax code to a new employee

Why Payroll Mistakes Can Get Expensive

Errors with your payroll can be enormously costly, and can include:

• Financial penalties for late or incorrect submissions

• Repayment of underpaid wages where employees haven't received the correct amount

• Additional pension costs where contributions have been calculated incorrectly

• Legal consequences for breaches, such as National Minimum Wage violations

• Reputational damage if any enforcement action becomes public

• Staff turnover and recruitment costs when payroll problems damage employee trust

Let's take a look at some common mistakes we see employers make, and their potential impact on businesses.

National Minimum Wage (NMW) Payroll Mistakes

There are several areas where NMW mistakes commonly occur:

Forgetting Age-Related National Minimum Wage Changes

National Minimum Wage differs for each age group, and the most common issue we see here at Apt Payroll is employers not adjusting employee pay rates to ensure their pay per hour is at least correct for their age.

After April has passed, it’s important to keep track of each employee’s circumstances, such as birthdays. For example, if they have recently turned 21, they are now legally entitled to be paid £12.71 per hour.

Forgetting When an Apprentice Moves to a Higher Rate

Did your apprentice recently complete the first year of their apprenticeship course? Remember that the apprenticeship rate no longer applies, and they are now entitled to the national minimum wage for their age.

Deductions That Reduce Pay Below the National Minimum Wage

Now that you’ve made sure that you’re paying your staff the correct rate, it’s also important to watch out for deductions that reduce their pay below the NMW.

Things like uniform deductions or salary sacrifices can reduce an employee’s pay below the NMW. Even if a deduction is written into a contract, you still cannot deduct the whole amount if it reduces an employee’s pay below the NMW.

Failing to Pay for All Hours Worked

Other areas to watch out for are unpaid hours. If breaks are unpaid, then no work should be undertaken. The same can be said for pre- and post-shift work. If you are asking an employee to clean and lock up after a shift, it’s important to pay them for the extra time.

What Can National Minimum Wage Mistakes Cost?

We’ve discussed how NMW administration can be missed, but what is the impact?

HMRC is responsible for enforcing the payment of NMW; they can charge penalties for breaches and can force employers to pay any underpayments.

The current penalties are up to 200% of unpaid wages, with a maximum penalty of £20,000 for each employee affected. For most small businesses, £20,000 can be a significant amount - and that’s before paying back the unpaid wages.

After the financial cost is considered, there is the reputational damage to take into account. HMRC routinely publishes the names of employers breaching NMW rules on their website. Even if people are not checking HMRC’s website, these names are often picked up and circulated in local papers and on social media.

Automatic Enrolment and Pension Payroll Mistakes

Common pension payroll mistakes include:

• Incorrectly opting employees out of a pension scheme

• Failing to assess an employee correctly for automatic enrolment

• Using the wrong pensionable earnings

• Calculating contributions on the wrong portion of an employee's pay

Since 2015, virtually every business with an employee has been legally required to provide a pension. There are exceptions – if your employee is under the age of 22 and earning less than £10,000 per year, for example, you’re safe – but these are few and far between.

It is illegal to entice employees to opt out of a pension scheme, or to opt them out without their full, informed, and educated consent. While we don’t believe that there is a set penalty, in 2018, a company was fined £280k by The Pensions Regulator for plotting to illegally opt their temporary workers out of the pension scheme.

Quite apart from intentional illegal activity, there are minor mistakes that can be made by anyone with less experience setting up a payroll for the first time.

Pension Qualifying Earnings Errors

For example, there are 4 types of qualifying earnings that determine whether a pay element or type is pensionable, but the most common by far is banded earnings. All of an employee’s earnings above £520 and under £4189 will be pensionable. Anything under or over these figures doesn’t need to be included, so earnings of £520 in a single month won’t be pensionable, but if the same employee earns £521 the following month, that extra £1 will be pensionable.

The most common error we see employers make is paying an employee their pension on all earnings, rather than sticking to the band. Of course, most employees won’t be earning more than £4189 per month, but if you’re overpaying every employee’s pension on that first £520 each month, the costs will begin to add up.

Real Time Information (RTI) Payroll Mistakes

Whenever an employee is paid, you must make a submission to HMRC to keep their records of PAYE up to date in real time (hence the name Real Time Information). In turn, this supports other government departments that have come to rely on RTI data, such as Universal Credit.

Late or Missing Full Payment Submissions (FPS)

A Full Pay Submission is made after payday, and it is a report that covers all pay details regarding employees. It includes:

• Employee identifiers

• Gross pay

• Income tax

• National Insurance

• Pension contributions

If you forget to submit an FPS report or submit it late, you can incur a fine of up to £400 per month, depending on how many people you employ.

Incorrect Tax Codes for New Employees

Lastly, let’s think about new employees. We all want a smooth onboarding process, but occasionally issues can crop up. The most common one we run into at Apt Payroll is the wrong tax code being applied to a new starter. On the New Starter Checklist, it’s important to make sure that the new employee checks the right box so they are on the correct tax code from the start.

The financial implications of an incorrect tax code here fall solely on the employee. They could overpay their tax, which could have an immediate impact on their financial stability. They could also under-pay, which in the short-term can feel beneficial, but HMRC will always come back to take their cut, and if the employee doesn’t have adequate savings to cover the shortfall, it can cause them long-term instability should the error go undetected for too long.

The Cost of Getting Payroll Wrong

Getting your payroll wrong can add up, becoming expensive and complicated to untangle:

• Employees may be paid incorrectly or late

• The business may have to repay underpaid wages

• Penalties can apply to certain payroll errors

• Pension contributions may be higher than necessary if calculated incorrectly

• Payroll problems can damage employee trust and contribute to staff turnover

• Some enforcement action can cause reputational damage

How Somerset Businesses Can Avoid Payroll Mistakes

When you feel like payroll administration is taking over your to-do list, consider reaching out to a professional team of payroll experts to support your business and provide timely, compliant service.

Apt Payroll provides all the benefits of having an inhouse payroller, but at just a fraction of the cost, meaning that our clients can rest easy knowing that their team will be paid accurately and on time. You can email or call us at 01373480440 to book a free consultation and no-obligation quote.

Frequently Asked Questions

What are the most common payroll mistakes for small businesses?

Common payroll mistakes include using the wrong National Minimum Wage rate, failing to pay for all hours worked, calculating pension contributions incorrectly, submitting RTI information late or incorrectly, and applying the wrong tax code to a new employee.

What happens if a business pays an employee below the National Minimum Wage?

An employer may be required to repay the employee's underpayment and could face financial penalties. National Minimum Wage compliance is enforced by HMRC, so businesses should check that pay rates, working hours, and relevant deductions are being calculated correctly.

Do payroll mistakes affect workplace pension contributions?

Yes. Payroll errors can affect pension contributions if an employee is assessed incorrectly or pensionable earnings are calculated using the wrong figures. Incorrect calculations can result in contributions being too high or too low.

What is Real Time Information (RTI) in payroll?

Real Time Information (RTI) is the system employers use to report payroll information to HMRC. Employers generally submit information about employees' pay and deductions when they are paid, helping HMRC keep PAYE records up to date.

How can Somerset businesses avoid payroll mistakes?

Businesses can reduce payroll errors by keeping employee information and pay rates up to date, checking National Minimum Wage changes, reviewing pension calculations, submitting RTI information correctly and on time, and ensuring new starters have the correct tax information. Some businesses also choose to use an experienced payroll provider to manage these responsibilities.